If you are shopping for a home, you may have been excited by the news that mortgage rates are at an 8-year low. This news certainly has spurred a lot of homebuyers to take immediate action. Mortgage companies right now are swamped with applications.
I want you to understand the situation right now with the markets and what it does and doesn’t mean for you as a homebuyer or homeowner. The low rates are exciting—but media hype has been somewhat exaggerated. Rates could be lower, but they’re not.
Basically, we have a lot of crazy stuff going on right now with the stock market. A couple days ago, the Dow plunged 2,014 points. Then, it shot back up 1,167 points following news of possible tax cuts. Since that time, it has crashed again since WHO made the announcement of a coronavirus pandemic official.
Now, you might be aware that the rate for the 30-year fixed-rate mortgage tends to follow the 10-year Treasury bond yield. Treasury yields have been falling, and so have mortgage rates.
Yesterday, the bond market dropped 100bps. The media widely reported the 8-year low for mortgage rates—but if you look more closely into what is going on, you will notice that mortgage rates are not keeping up with the drop in the Treasury yields, even though they’ve been falling.
The reason has to do with a difference between Treasury bonds and mortgage-backed securities (MBS), and that is the fact that it is possible to pay a mortgage off early. In a situation where rates are plunging, that associated risk climbs for mortgage investors.
With mortgage investors getting shy as a result, there are consequences. Those consequences manifest as an increase in mortgage rates or as higher fees.
So yes—mortgage rates are very low right now. But their decrease is somewhat “dampened” by the effects I just described. Nevertheless, we are seeing a rush to purchase or refinance right now.
I am not attempting to dissuade you from buying or refinancing; there are some excellent rates out there right now. I just want you to be aware of the finer details of the situation and to understand a bit more about the complex forces at play.
If you are thinking about purchasing or refinancing and want to understand the situation in even more depth, I can explain it to you during your consultation, along with how the ongoing volatility in the markets could affect you as a homebuyer or homeowner. I will also help you find the most competitive rates and the lowest fees available right now in the South Florida market. To schedule your consult, please give us a call today at (954) 840-8811.