Mortgage rates dropped to a new low for the 13th time this year, allowing a record number of homeowners to refinance, according to Freddie Mac, a government-sponsored agency that backs millions of mortgages.
The rate on the 30-year fixed mortgage fell to 2.72%, exceeding the previous low of 2.78% recorded the week of November 5. This is the lowest on records dating back to 1971 when the agency first began tracking rates. A year ago, the rate stood at 3.66%.
The new low would allow 19.4 million Americans to refinance their mortgages, a record high, according to exclusive data provided to Yahoo Money by Black Knight, a mortgage data and analytics firm. These homeowners could save a total of $5.98 billion on aggregate monthly payments.
“Investors had to weight the promising news of another vaccine contender against this week’s disappointing retail report and still-rising COVID cases, which drove the Freddie Mac interest rate for a 30-year loan down 12 basis points to another record low,” said Georgie Raitu, senior economist at Realtor.com, a real estate listing website.
‘Buyers and owners may see different rates’
Not everyone will be able to tap into the record low rates.
“Low mortgage rates are good for homebuyers as well as those looking to refinance,” said Danielle Hale, chief economist at Realtor.com. “But buyers and owners may see different rates offered depending on their credit characteristics, the type of home they are looking to buy or refinance, and whether they are doing a purchase or refinance itself.”
As unemployment increased during the pandemic, home loans backed by the Federal Housing Administration and often used by borrowers with blemished credit have increased their minimum credit score requirements — up to the mid-600s at some lenders — to protect from a higher risk of default.
Many banks also tightened lending standards in the third quarter for most types of mortgages, including for government- sponsored mortgages, which make up the majority of bank mortgage originations, according to a recent report from the Federal Reserve.
Rates could dip lower
Rates will likely decrease in upcoming weeks, experts said, but the rate is unlikely to reach as low as 2.5%. That is largely due to lenders being unable to keep up with a mortgage refinancing boom during the pandemic.
“Mortgage rates have traditionally been aligned with and mirrored the moves of the 10-year Treasury note,” Raitu said. “With Treasury yields having spent the better part of 2020 under 1%, we could have expected rates to have been in the 2.5% to 2.6% [range], but many lenders have responded to high unemployment and a large wave of refinances by tightening underwriting standards and keeping rates higher.”