Mortgage rates fell to an all-time low this week, a boon for home buyers and owners alike who can lock in the rate.
The rate for the 30-year fixed mortgage dropped to 3.15%, according to Freddie Mac, an agency that backs mortgage loans, dipping below the previous record low of 3.23% set on April 30.
Read more: When to refinance a mortgage
“The 30-year fixed-rate mortgage has again hit the lowest level in our survey’s nearly 50-year history,” said Freddie Mac Chief Economist Sam Khater in a press release “breaking the record for the third time in just the last few months.”
The Federal Reserve has helped to lower mortgage rates during the coronavirus pandemic. The central bank has bought more than $500 billion of mortgage-backed securities since late March when it restarted a bond-buying program to drive down interest rates further to help boost the economy.
‘That’s the kicker’
Lower rates arm prospective buyers with more purchasing power as the shutdowns across the country end and they come back to the market. Thanks to lower rates, they can now qualify for mortgages with smaller monthly payments.
Six months ago, rates hovered between 3.8% and 4%. On a $400,000 house, the savings now are massive, said Scott Sheldon, branch manager at New American Funding, a mortgage lender, in California.
“We’re looking at anywhere between $300 to $350 a month in payment reduction,” he said, “which can relate to a spending power of $50,000 for 90% of families.”
It’s a rate that homeowners can stick with for the life of the loan, too, he said.
“They will probably never have to refinance,” Sheldon said. “Realistically, that’s the kicker.”
Refinancing still going strong
Refinancing continues to heat up, as homeowners rush to take advantage of lower rates. Refinance activity last week was up 176% increase versus the same week a year ago, according to the Mortgage Bankers Association, a trade group.
“Refinance activity remains elevated and low mortgage rates have been accompanied by a $70,000 decline in the average loan size of refinance borrowers this year,” said Khater.
Many of those homeowners refinancing are using cash-out refinances to pay off debt during the pandemic.
“I have 74 loans in my pipeline right now and 11 of which are purchases and the rest are refinances,” Sheldon said. “About 60% of the loans are cash-out refinances and the rest are payment reductions.”
Will lower rates last?
But the low rates may not last for long, according to Sheldon. He pointed out that the economy opening up may be bad news for mortgage rates.
“If the 10-year [Treasury] rallies and mortgage-backed securities continue to deteriorate and rates come down, lenders will raise rates. Otherwise, they’ll lose money,” Sheldon said. “Workers starting to return is good news for the economy, but bad news for mortgages.”