Question

Between the beginning of 2020 and the middle of 2020,

A. the typical interest rate on jumbo mortgage went up, relative to the interest rate on conforming mortgages

B. the typical interest rate on conforming mortgages went up, relative to the interest rate on jumbo mortgages

Answer 1

Jumbo mortgage is type of financing that exceeds the limits set by the Federal Housing Finance Agency (FHFA). and   conforming mortgage that is equal to or less than the dollar amount established by the limit set by the Federal Housing Finance Agency (FHFA) and meets the funding criteria of Freddie Mac and Fannie Mae. For borrowers with excellent credit, conforming loans are advantageous due to the low-interest rates affixed to them.

A year ago, a lot of experts predicted higher mortgage rates in 2019.Turns out those predictions were far off base. Rates have actually dropped quite a bit in the second half of this year. and of course the reason is covid-19. due to the lockdowns in so many countries the economy is highly affected and so do the banks and ofcourse therefore mortagages and the interest rates had ups and downs in the biggining and middle of 2020. due to the corona virus pandemic the world announced rate cuts to stave off a coronavirus-related recession. The theory is that by cutting rates, borrowing costs decrease, and this prompts businesses to take out loans to hire more people and expand production. The logic works in reverse when the economy is hot. Here, we take a look at the impact on various parts of the economy when the Fed changes interest rates, from lending and borrowing to consumer spending to the stock market.

A. in the beginning of 2020 the typical interest rates on jumbo mortgage went up, relative to the interest rate on conforming mortagage. generally, Interest rates are typically slightly higher on jumbo loans, just because the balance is higher (and, subsequently, so is the risk for the lender). Conforming loans are less risky for lenders (because they’re lower in cost and in such high demand), so rate tends to be fairly low. and of course in the biggining of 2020 there was not that much impact of covid-19 on the economy so the rates on jumbo mortagage were went up as per the predictions of experts.

B. In the middle of 2020, there was a corona virus impact on the economy, it highly affected the economy, as there were lockdowns over the world, therefore the central banks have to cut the rates.The interest rates changed, there are real-world effects on the ways that consumers and businesses can access credit to make necessary purchases and plan their finances. The goal is to reduce the cost of borrowing so that people and companies are more willing to invest and spend. Lower interest rates directly impact the bond market, as yields on everything from U.S. Treasuries to corporate bonds tend to fall, making them less attractive to new investors. Bond prices move inversely to interest rates, so as interest rates fall, the price of bonds rise. Likewise, an increase in interest rates sends the price of bonds lower, negatively impacting fixed-income investors. As rates rise, people are also less likely to borrow or re-finance existing debts, since it is more expensive to do so. therefore, the interest rate on conforming mortagage went up, relative to the interest rate on jumbo mortgage.