If mortgage rates plunged to zero

Imagine financing a home purchase with a no-interest mortgage. You’d probably never want to move again.

Granted, it’s doubtful you’ll ever have that luxury.

But if rates continue to drop, as some in the mortgage industry suggest they may — especially after the Federal Reserve’s recent statement that it was prepared for more extraordinary measures to pump up the economy — mortgage rates could inch in the direction of 0%. Continued concerns of deflation may also put pressure on mortgage rates.

“So long as the Fed allows the word ‘deflation’ to get bandied about, mortgage rates will ease lower,” said Dan Green, loan officer with Waterstone Mortgage, in Cincinnati, in an email.
How much lower?

“In theory, the only stopping point there is is 0% — that’s where all nominal interest rates have to stop,” said Mike Larson, real-estate analyst for Weiss Research.

Think about it: 0% financing has long worked as an incentive in the auto industry. And home builders have been known to pay down mortgage rates for their buyers, so these days it wouldn’t be unheard of for them to entice people with a 2% or 3% mortgage rate, at least for a period of time, Larson said.

But mortgages are different than car loans.

“Do I think we will see [0% mortgages] in our lifetimes? No, I don’t,” Larson.

Even during times of deflation, try telling an investor that he’d do well to buy a security with zero return, said Keith Gumbinger, vice president of HSH Associates, a provider of consumer loan information. It’d be a hard sell.


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