Mortgage Rate Plunge! Time to Take Another Look at a Refinance/Purchase?

October 15, 2014 No Comments »
Mortgage Rate Plunge! Time to Take Another Look at a Refinance/Purchase?

As many long anticipated, the stock market finally took a major hit after months of seemingly endless gains.

When it comes down to it, things can’t keep rising forever (remember home prices), and so we’re finally seeing some pullback, though no outright correction yet.

Thanks to the recent stock market carnage, bonds have rallied because they are where investors turn for “safety” during turbulent times on Wall Street.

The 10-Year Bond Yield Plummeted Today

10-year yield

When bond prices go up, yields come down and mortgage rates tend to follow the direction of the 10-year bond yield.

Early this morning the 10-year bond yield took a major dive, falling as low as 1.8680%, which is below its 52-week low of 1.87%, per Yahoo.

It has since risen to around 2.03%, which is about 8% below Tuesday’s price. During the past month the yield is down nearly 15%.

Simply put, this is great news for mortgage rates, but not so great for your stock investments!

The Dow is off more than 300 points today, or nearly 2%, and has lost nearly 6% in the past five trading days.

The 30-Year Fixed Is Back Below 4%

Okay, so your stock portfolio isn’t exactly something you want to even look at right now. But mortgage rates are lower, right?

Back in spring, the 30-year fixed was pricing closer to 4.50%. Today, you might be able to get a rate closer to 3.875%, which on a $300,000 mortgage would save you roughly $110 per month, or over $1,300 annually.

If your loan amount is closer to $200,000, the monthly savings drop to a little below $75 per month, or less than $900 annually.

At first glance, it might not even sound that great, but the savings can add up over time.

Additionally, the lower rates might actually allow more prospective homeowners to qualify for mortgages.

Lenders have become a lot more stringent when it comes to DTI ratios thanks to the QM rule limiting the back-end number to 43%.

So a rate that is a half percent lower might actually make scores of could-be homeowners eligible again, especially if home prices ease some during fall and winter.

The lower rates could also make refinancing more attractive to those who no longer saw the benefit after rates rose off record lows.

[The refinance rule of thumb.]

Be Patient with Rates

While all the headlines will tell you that rates are “plunging,” including my own because I like to mock-sensationalize, you might be disappointed when you actually run the numbers.

Aside from the savings being perhaps a bit lower than you expected, lenders also tend to take their time when lowering rates as to not get burned.

For one, they’ve got an active pipeline of loan applications with higher interest rates. They don’t want that business to jump ship.

Additionally, things can change quickly, so if they lower rates too much too fast, any positive economic news could make mortgage rates surge higher. Then they’ll get caught out.

There’s no point in lowering rates unnecessarily if this is a temporary blip, as opposed to a longer-term trend. So you should count on banks and lenders playing this one carefully.

In other words, it might take some time for rates to come down as much as they should, meaning patience could be rewarded here.  Heck, even Bernanke might benefit from waiting, not that he had a choice…

Read more: Should I lock or float my mortgage rate?

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