One of the problems with refinancing a home loan right now is that mortgage rates keep falling.
As such, you might find the need to refinance again shortly after refinancing. Aside from being inconvenient, it’s also not very cost-effective.
Yes, it costs money to refinance, whether you pay for it out-of-pocket or via a higher interest rate, the latter being a no cost refinance.
So in a sense, mortgage rates moving even lower can be seen as a bit of a double-edged sword – sure, lower is better, but does it make your prior refinance worthless in the process?
Are More Record Lows on the Way?
- Mortgage rates hit record lows for three weeks in a row
- Then pulled back slightly in the latest week, per Freddie Mac data
- The popular 30-year fixed currently averages about 3% flat
- Could we see 2.75%, 2.5%, and eventually 2.25% at some point soon?
At the moment, mortgage rates are essentially at record lows, give or take a few basis points.
The 30-year fixed is hovering around 3%, which is basically its lowest point on record. Some borrowers are obtaining rates even lower than rate, say at 2.875%.
Over the past year, mortgage rates have defied expectations by marching lower and lower.
This has led to a surge in mortgage refinance activity for the past 12 months or longer. But it’s also led to questions like, “How soon can I refinance again?”
You see, while homeowners are locking in some truly impressive interest rates, it’s often not long before they have to reassess a subsequent refinance.
After all, if it made sense to refinance from 4% to 3.5%, why wouldn’t this same borrower entertain a refinance offer at 3%?
The answer is they likely would take a lender up on that offer, which explains the record volumes being enjoyed by just about every lender, big and small, right now.
The question now is could mortgage rates go even lower? The answer is probably YES.
Where Will Mortgage Rates Be in Late 2020?
- It’s no secret the year 2020 has been a wild ride and it’s only July
- We’ve still got a serious COVID-19 situation and a presidential election to deal with in November
- Along with a stock market that is refusing to read the writing on the wall
- That means there’s a good chance mortgage rates could be even lower later this year
Simply put, mortgage rates tend to do well when economic conditions are poor, or if there’s uncertainty in the air.
The same is true if the Fed is manipulating the market by agreeing to buy billions of mortgage bonds to keep rates cheap.
This powerful combination has led to the lowest mortgage rates on record – and with a lot of drama left to come this year, we could see even cheaper mortgage rates.
As mortgage rate watcher Matthew Graham recently pointed out, there’s a 2.25% mortgage bond coupon that was introduced in April of this year.
The mere fact that it exists means interest rates on the 30-year fixed could move as low as 2.25% at some point.
That’s essentially the start of the conversation, the real possibility that it could happen, as opposed to just throwing out arbitrary numbers.
It’s there and waiting for more turmoil in the financial markets. If it comes, we may indeed see a 30-year fixed priced just above 2%, which would be unheard of.
This may also explain why some lenders have already introduced 2.5% 30-year fixed mortgage rates. They know there’s a market for it.
At the same time, it would mean the millions of homeowners who purchased a home or refinanced a mortgage with an interest rate closer to 3% would have to pick up the phone and refi again.
That’d be more good news for lenders and loan officers, but could also lead to frustration from borrowers who repeatedly need to refinance.
It also calls into question the idea of paying points, or even closing costs, when taking out a mortgage these days, assuming your home loan only lasts months as opposed to years.
(photo: Steven Depolo)