Mortgage rates hit another record low this week, edging closer to breaking below 3%.
The rate on the 30-year fixed mortgage — the most popular home loan — dropped to 3.03%, according to Freddie Mac, down from 3.07% from the week before. Freddie, a government agency that backs millions of mortgages for Americans, has tracked rates weekly since 1971.
Read more: When to refinance a mortgage
“This puts a significant share of borrowers ‘in the money’ to take advantage of these low rates right now by refinancing,” said Joel Kan, associate vice president of economic and industry forecasting at the Mortgage Bankers Association, in an emailed statement to Yahoo Money.
“Given the ongoing economic uncertainty and strains in the job market, the opportunity for homeowners to lower their monthly mortgage payments would likely be very beneficial” he said, “by giving them more cash to pay down other household debt, use for essential spending, or putting it toward long-term savings.”
For instance, a homeowner with a $200,000 mortgage at 3.75% is paying $926 a month. If they lower the rate to 3.03%, their monthly payment would be $80 lower, savings that could go to other bills or building up an emergency cash fund during this volatile time.
Lower rates also give homebuyers more purchasing power by making borrowing cheaper. This comes at a time when many buyers are stretching their budgets to close on a house, stymied by too few homes for sale. This week, the MBA announced that the average purchase loan size had increased to an all time record of $365,700 as borrowers faced high prices with a housing shortage.
Can rates go below 3%?
Jeremy Sopko, CEO at Nations Lending Corporation, a mortgage lender, expects rates to drop below 3% for the most qualified borrowers — those with large down payments, excellent credit scores, significant income, and low debt.
“A second wave of coronavirus or the continuation of the first wave, depending on how you want to phrase it, is likely going to apply pressure to the economy as a whole,” he said.
But some of the most credit-worthy borrowers may be able to get sub-3% even now, Sopko said. He also said that FHA and VA loans are the most likely to offer these lower rates.
“It's possible that someone with excellent credit and a very low [debt-to-income ratio] could already qualify for a rate below 3% depending on where they choose to borrow,” Sopko said. “And remember, you can always pay points upfront at closing if you want to bring the interest rate down.”
But don’t expect rates to stay below 3% for long, if they get there in the first place.
“If the economy starts improving, we’ll see rates rise as quickly as they fell in the first place,” Sopko said.