Today we should see another all-time-low record in mortgage rates!
What is the impact?
Here’s how it pencils:
If we just go back to the 52-week high of 4.75%, you could borrow $808,000 and pay $4,215/mo.
If you shopped around to get a 3.0% jumbo rate today, you’d pay a point or so, but you could borrow $1,000,000 and have a payment of $4,216 per month.
Within a 12-month period, the borrowing power has gone up from $808,000 to $1,000,000 with no change in payment!
This is why sellers don’t mind pushing their list prices – they want to share in the benefit!
If there is an upside to all the pandemic-induced uncertainty in the economy, it’s the rock-bottom mortgage rate bonus for homeowners and homebuyers.
The average rate on the popular 30-year fixed just fell to another record low — 2.87%, according to Mortgage News Daily.
That is about a full percentage point lower than a year ago. And that’s just the average. Some borrowers are getting even lower rates.
“There are pools of loans being sold right now with average rates of 2.625%, meaning some people are getting rates at 2.375-2.5%,” said Matthew Graham, chief operating officer at Mortgage News Daily. “While those likely involve some closing costs, that’s still nuts.”
Mortgage rates loosely follow the yield on the 10-year U.S. Treasury, which on Thursday fell to the lowest level since March. It is not an exact marriage, however, as the two have diverged recently given all the strange market conditions brought on by the coronavirus: The Federal Reserve began buying more mortgage-backed bonds to keep the market afloat and at the same time instituted a mortgage bailout for borrowers hit financially by the crisis.
All the uncertainty makes lenders and investors in mortgages nervous. They worry that people will lose their jobs and not make their monthly payments, or that the economy will go on lockdown again, hurting the housing market in general.
Mortgage rates are really based on what investors will pay for mortgage-backed bonds. Investors need some kind of yield, or they won’t buy those bonds. That is why rates can only go so low. It’s a question of whether the bonds even exist and what the demand would be for those incredibly low-rate bonds.
“For a variety of reasons, it doesn’t make any sense for the mortgage market to begin to rely on a new, lower-rate mortgage bond unless it’s sure that bond will remain relevant,” said Graham. “We only recently saw the introduction of an all-new mortgage bond coupon in April. It technically allows for rates to go down to 2.25% on the 30-year fixed. That’s as low as rates could go without a serious double-dip recession to drive a second wave of gains in the bond market — totally possible, but not yet a guarantee.”
Investors also want to be able to get the yield on the bonds they buy for a long while in order to make their investment worth it, so they don’t want people to refinance too quickly. Refinance volume has been incredibly strong this year, with applications last week up 122% annually, according to the Mortgage Bankers Association.
So yes, mortgage rates are at a record low and could move even lower, especially if the U.S. economy shuts down again, unemployment rises and investors rush even further into the bond market. Could that 2.25% limit be tested? Absolutely, but the detrimental economic conditions needed for that would likely push any potential buyers away from such a huge investment as a house. For current homeowners looking to refinance, it might be time to start shopping rates yet again.
everyone in the neighborhood has been flexing with each other over their new low rates.
so, 2.5 is the record in our neighborhood.
Second wave of job-cuts have just started, rates are going to have go to Sub 2 to keep the middle markets afloat.
Sub 2? Geez, I’m already pedaling as fast as I can!!!