They say there’s no such thing as free money, but the possibility of 0% mortgage rates might be the closest thing to it. If President Trump gets his way, we might just see rates dip to zero or even negative.
A recent USA Today article discussed Trump’s tweet last Wednesday that the Fed “should get our interest rates down to ZERO, or less,” allowing the federal government to refinance its massive debt at a lower cost. While this may seem hard to imagine, Bank of America officials told USA Today: “We believe negative rates in the U.S. are a possibility. We’re also not in uncharted territory as Denmark’s third-largest bank is already offering negative interest rates with others starting to follow suit.
What Do Zero or Negative Interest Rates Mean for Home Buyers?
So if we see zero or negative interest rates, is it possible that you will actually make money off your mortgage loan?
Yes and no.
First of all, it’s important to point out that mortgage rates and Fed rates are not necessarily always tied to each other. However, If mortgage rates follow suit and dip below zero it is possible that you will end up paying less than the amount you actually borrowed, but banks obviously still have to make money. Most experts agree that banks would be forced to add new or increased fees on a loan to make up for some of the losses.
With much lower mortgage payments, homebuyers will have more buying power and will likely increase the demand for owning a home. I am somewhat torn as how this will affect the real estate market, but I see one of two things happening.
Two Possible Outcomes
It will either create an even more competitive buyer’s market where home prices skyrocket because of the high demand. This could offset some of the money saved from the lower interest rates. The other possibility is that we will see the market level out as a wave of current homeowners chooses to sell their house to take advantage of the huge interest rate cuts and thereby flood the market with tons of new home inventory. If the latter happens, then owning a home could be even more affordable due to the increased inventory.
….And One More Possibility
While zero or negative interest rates could be a massive advantage for potential homebuyers, there is possibly one negative effect this could have. In a negative interest scenario, banks will likely force their clients to pay fees for the bank to hold their money instead of accruing interest on their savings. Thereby making it more difficult to save money in the first place.