Having said that, it’s certainly possible. Between the ongoing trade war and general recession fears, there’s definitely a fair amount of downside risk when it comes to the strength of the U.S. economy. Plus, the Federal Reserve is under pressure to cut rates, so if they cut rates several times before a recession occurs, negative interest rates could be a possible tool to help boost the economy.
How do negative interest rates affect mortgages and investors?
Negative interest rates would almost certainly cause an overall drop in the stock market, as it would erode confidence in the U.S. economy. Some industries would be hit especially hard -- banks in particular would likely see profits nosedive, as these businesses rely on interest income.
On the other hand, real estate could be one of the few winners if negative interest rates spread to the United States.
For property investors, negative interest rates would make borrowing much cheaper. Now, even if we saw negative Treasury yields, it’s unlikely that mortgage rates would turn negative. However, assuming that mortgage rates move in line with long-term Treasuries, there could certainly be a long way down.
As of early September 2019, the average APR on a 30-year fixed-rate mortgage is about 3.875% and the 30-year Treasury is hovering around 2%. If the 30-year Treasury yield were to fall to an unprecedented 1% or even 0.5%, this could easily result in 30-year mortgage rates in the 2%-2.5% range.
Let’s say that you’re borrowing $200,000 for an investment property. Here’s the difference that certain hypothetical mortgage rates could make on your borrowing costs: