Mortgage rates for home purchase have achieved a new record low by touching 3.37% after 3.56% the last week. Before the new record was achieved in the second quarter of 2020, the record low was set at 3.50%. With low interest rates, many homebuyers have gained a bargain even though the housing market is running low on the inventory. The main factor for such dramatic changes in the sector is the outbreak of COVID-19. Still, many are trying to ease their losses after the outbreak so many lenders are providing mortgages with minimum risk only. What are the catch behind getting low mortgage rates for refinancing and home purchasing?
What’s the Catch with the Dropping Mortgage Rates?
CNBC REPORT: ‘It’s going to be ugly,’ analyst says as mortgage rates suddenly spike on shocking jobs report
What’s good news for the U.S. economy is suddenly bad news for mortgage rates. A far-better-than-expected May employment report only added to a growing sell-off in the bond market, pushing yields to the highest level since March. Mortgage rates loosely follow the yield on the 10-year Treasury.
- The average mortgage shopper may see rates on the 30-year fixed as much as a quarter point higher, said Matthew Graham, COO of Mortgage News Daily, which runs daily averages from lenders.
- Mortgage rates loosely follow the yield on the 10-year Treasury.
- “It’s going to be ugly,” Graham said. “Today is the first time since the Covid-19 market reaction settled down in March that interest rates truly have a reason to panic. Until further notice, this looks like liftoff.”
FOX BUSINESS: Today’s mortgage rates are astonishingly low
The coronavirus pandemic has wreaked havoc on the U.S. economy, leading the government to scramble to find ways to encourage spending and ease the strain on Americans’ wallets.
Mortgage rates dropped to a new all-time low in late May to an average 3.15 percent for a 30-year fixed-rate and 2.62 percent for a 15-year fixed-rate, according to Freddie Mac. That’s down from a 4.06 percent average a year ago.
To give you an idea of your potential savings with the current mortgage interest rates, let’s take a look at a 30-year $300,000 loan with a 3.15 percent interest rate versus a 4.06 percent rate.
With a higher rate, your monthly payment would give you a monthly principal-and-interest payment of $1,443. If you could score the lower rate, however, your payment would be reduced to $1,018. That’s a savings of $138.67 per month and almost $50,000 over 30 years.
Average Mortgage Rates Dropping Since December 2019
Mortgage rates are dropping from month to month since December 2019. Average rates for 30-year mortgage rates were set at 3.9% in December 2019. The rates dropped from 4.54% recorded in late February of the same year. Rates continued with consecutive dropping, finally ending up at new record lows at 3.37%. Following that pattern, mortgage rates could continue with decreasing rates for weeks and even months.
Fixed Mortgage Rates Could remain Between 3% and 3.5% in 2020
Mark Zandi, chief economist at Moody’s expects the fixed mortgage rates in 2020 to stick with 3% to 3.5%. Although the rates are more than favorable for new buyers and those who are taking refinancing mortgages, there is a catch. Lenders are becoming more careful amidst uncertainty and fear of a potential recession as a consequence of the COVID-19 outbreak.
Lenders More Careful with Mortgage Approvals
To create a shield against losses amidst a potential recession as seen back in 2008, many lenders are not accepting high and medium risk mortgage applications. Low interest rates are thus mainly granted to borrowers with good and excellent credit scores, home of equity, and favorable proof of income.
With mortgage rates so low, June is a good time to refinance. There’s no need to rush, though: Interest rates might remain near record lows for months.
- The 30-year fixed-rate mortgage averaged 3.365% APR in May in NerdWallet’s daily rate survey.
- This was the second-lowest average for the 30-year fixed in the history of NerdWallet’s survey, just behind April’s average of 3.363% APR.
- Mortgage rates were remarkably stable all month, with the average 30-year fixed varying less than one-quarter of a percentage point from its lowest to its highest level.
BANKRATE: Forecast survey: Fed seen as keeping rates at rock bottom through yield-curve control
The Federal Reserve is seen as increasingly likely to keep interest rates at near-zero percent until 2023 or beyond and will find new ways to keep borrowing costs at rock-bottom levels.
That’s according to a growing number of financial and economic experts surveyed for Bankrate’s June Fed Forecast poll, which found that more than a third (or 34 percent) say the U.S. central bank won’t be able to lift rates for three to four years. Just 29 percent of experts said this during the prior survey period in April.
But fighting off a downturn that Fed Chairman Jerome Powell has equated as the worst economic crisis in generations is only half the battle. The Fed will turn to new tactics similar to quantitative easing (Q.E.) that include capping yields on certain Treasury securities and expanding its balance sheet to unprecedented levels. The U.S. central bank is unlikely to cut into negative territory, respondents said.
