In an economic crisis because of the coronavirus, which faced Americans, there is a positive side: interest rates are at historically low levels, and benchmark bond yields for the first time in history fallen below 1%, which is likely to lead to further cost reduction for all loans, from mortgages to student loans. About it writes USA Today.
The US Federal reserve (fed) lowered the cost of borrowing to almost zero on Sunday, March 15, on an emergency basis to deal with the economic shocks from the pandemic coronavirus. Meanwhile, the yield on 10-year Treasury bond, a key benchmark that affects the cost of borrowing for homes and loans, this month fell to a historic low.
But experts say that borrowers may benefit from a combination of lower rates and lower bond yields in the coming months.
Mortgage rates fell to historic lows, as bond yields fell, which could help home buyers and those who want to refinance. When the yield on the Treasury falls, the banks set lower interest rates on mortgage loans.
Key short-term fed rate affect 30 year mortgages and other long-term rates. The average fixed rate on 30-year mortgage loans increased to 3.36%, compared to the record low of 3.29%. This is almost a whole percentage point lower than to 4.31% a year ago.
“This is the time to refinance,” says Julie Carlson, founder and CEO of Financial Freedom Wealth Management Group.
The decline in yields may also affect interest rates on student loans. Experts warn that Americans, who will go to College next fall and weigh proposals for financial assistance, it is important to separate grants from loans, which must be returned.
“Once you take Federal student loan interest rate is set for life,” says Robert Humann, CEO of Credible, online-market loans.
If the yield on the Treasury drops to zero, interest rates on new student loans will be 2.05%, the graduate students will pay 3.6% and the rate on loans to parents PLUS and Grad PLUS will be 4.6 percent.
Friday, March 13, the yield of Treasury bonds was established at level of 0.946%, after falling to a record low of 0.318 PCT in early March.
Credit card holders probably do not immediately feel the impact of the last step the fed to cut rates to zero, because it usually passes within a few cycles.
According to Matt Schultz, chief industry analyst CompareCards, for a person who has a credit card debt of $6,000, only one rate reduction on Sunday, March 15, may save a little less than $200.
“While this is certainly positive news for those who have debt, other steps will be much more useful, — said Schultz. — Perhaps the best that could do the banks, is to allow cardholders to skip one or two payments in this time of crisis, without fear of fees, fines or interest charges. It would be a really big step.”