Interest rates have been reaching historic lows with dull regularity during the past few months. Freddie Mac says rates last week for 30-year financing hit 3.56 percent, the lowest on record.
But rates could go far lower. As a leading indicator of sorts, we have the $5.95 million mortgage taken out by Facebook founder and billionaire Mark Zuckerberg. His ARM start rate? Just 1.05 percent. That's below the inflation rate, meaning in terms of buying power that Zuckerberg has no real borrowing cost.
One can actually make the argument that Zuckerberg — who has a better balance sheet than a number of governments — is overpaying.
For instance, investors are already making interest-free loans. According to DollarCollapse, short-term bonds in the U.S., France, Germany and Switzerland have all been recently sold with rates below zero. That means if you invest $100 for the safety and sanctity of such government securities you will knowingly get back less.
There actually used to be something called a "zero interest mortgage." With this loan you could get $500,000 in financing, put down one third ($165,000), and then make monthly payments of just $5,583 for five years. The total interest cost for the loan? Zero. There is no interest. So how does the lender make money? The answer is that money is made by a seller who provides a $500,000 mortgage for a home which is only worth a lower number, say $400,000.
This time around we may really be looking at zero interest mortgages or something very close. The world is awash in cash held by investors looking for safety. The result is that interest rates have been driven into the ground.
In terms of short sales and foreclosures low interest rates are probably the best hope we have to quickly stabilize home values. Here's why:
First, people who have ARM financing have not been clobbered with higher monthly costs that could lead to more foreclosures. Second, people with toxic loans have been able to refinance, especially now with the expansion of the HARP program to include homeowners who are totally upside down on their mortgages. This has also held down foreclosure levels.
Nobody quite says so but the HARP program is as close to a universal refinance effort as we're going to get. Essentially it's open to anyone with a hardship who's been making their payments for the past year, regardless of the value of their home.
I've been looking at rates with the thought of refinancing a home mortgage but the more I look the more I'm uncertain that now is the right time to get a loan. When will rates stopped falling? I have no clue but the way things are going maybe interest-free loans really are in our future. If not, I'd even settle for 30-year fixed-rate financing with the interest level obtained by Mr. Zuckerberg.