Concerns that the coronavirus could hit the U.S. economy are pushing mortgage rates to their lowest level since 2012. This is spurring a growing number of homeowners to refinance their loans as well as attracting home hunters to apply for mortgages.
A survey by the Association of Mortgage Lenders Bankers published on Wednesday shows that refinancing activity has increased 224% over a year ago, while home loan applications have increased 10% compared to the same period last year.
Capital Economics analyst Matthew Pointon attributed the jump in refinancing in part to a continued drop in government bond yields to historic lows amid concerns that the virus could wreak havoc on the economy. “[W]With yields falling to just 1% this week, we expect mortgage rates to also fall soon to historic lows, ”he said in a research note.
The average 30-year fixed-rate mortgage interest rate is 3.2%, while 15-year loans are 2.9%, according to Mortgage News Daily. This has dropped by more than a full percentage point in just 12 months: average rates were 4.5% and 4.1%, respectively, this time last year.
Advice for homeowners who want to refinance their mortgage
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Lower rates make homeowners pay less for their total loan (principal plus several decades of interest payments) over the life of a mortgage. It also means homeowners can go back to their bank and change the terms of their existing mortgage loan, a move many Americans are running.
“With refinancing activity largely immune to coronavirus disruption, you can refinance from the safety of your home, that strength will be maintained,” Pointon said.
The Federal Reserve movement on Tuesday to reduce it reference rate by 0.5 percentage points Due to the potential impact of the virus, the largest cut since October 2008 is expected to further lower mortgage rates. Mortgage rates do not move directly in line with the Fed’s reference rate, but are affected by monetary policy, as lenders value loans based on 10-year Treasury yields.
For the housing market as a whole, it is less clear whether low mortgage rates attract more buyers or whether economic uncertainty over the coronavirus slows home sales.
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