At O1ne Mortgage, we prioritize educating our clients about financial concepts that can impact their lives. One such concept is negative interest rates. In this article, we will explore what negative interest rates are, when they might be implemented, the risks associated with them, and how they could impact consumers. If you have any mortgage service needs, feel free to call us at 213-732-3074.

What Are Negative Interest Rates?

Negative interest rates occur when interest rates fall below 0%. This means that instead of earning interest on deposits, banks might charge depositors for holding their money. There are two main types of negative interest rates:

• Negative nominal interest rates: These are the rates set by a nation’s central bank, which can influence the rates that financial institutions charge or pay.
• Negative real interest rates: These are calculated by subtracting inflation from the nominal interest rate. Even if the nominal rate is positive, high inflation can result in a negative real interest rate.

When Would Negative Rates Be Implemented?

Negative interest rates might be implemented to stimulate economic growth and help a country avoid or recover from a recession. Lowering interest rates can encourage borrowing and spending, which can boost the economy. For example, the European Central Bank and the central banks of Denmark, Japan, Sweden, and Switzerland have implemented negative interest rates in response to economic crises.

Risks of Negative Interest Rates

While negative interest rates can stimulate economic activity, they also come with risks:

• Decreased foreign investment: Lower exchange rates can reduce foreign investments.
• Increased housing prices: Low mortgage rates can lead to higher home prices as more people buy homes.
• Disrupted financial markets: Banks might struggle to finance their lending activities if depositors withdraw their money.

How Negative Interest Rates Could Impact Consumers

Negative interest rates can affect consumers in several ways:

• Lower cost of borrowing: Interest rates on loans, including mortgages, auto loans, and credit cards, may drop, making borrowing cheaper.
• Lower interest rates on savings accounts: Savings accounts might offer lower interest rates, making saving less attractive.
• More fees on deposit accounts: Banks might increase fees on checking and savings accounts to offset decreased earnings.
• Lower yields on fixed-income investments: Investments like bonds may offer lower yields, which can be challenging for retirees.
• Rising stock market prices: Investors might move their money into stocks, potentially driving up stock market prices.

Your Credit Can Also Affect Your Interest Rate

While central bank rates influence borrowing costs, your creditworthiness also plays a significant role. Improving your credit score can help you qualify for better rates. At O1ne Mortgage, we can help you understand your credit and find the best mortgage options. Contact us at 213-732-3074 for personalized assistance.