While the coronavirus pandemic has financially sideswiped millions of Americans, there is something of a silver lining: current mortgage rates are declining — and homeowners and home buyers alike can save big.
Mortgage interest rates have hovered near historic lows for much of 2020 thanks to Federal Reserve policies designed to bolster the economy. If you're a prospective home buyer or a homeowner who's interested in a refinance loan, a rates drop can translate to significant savings (and lower monthly payments).
In the meantime, here's a closer look at why the lower interest rates trend may continue this year.
Today's mortgage rates
According to Freddie Mac data for the week of October 22nd, mortgage rates are on a flattening trend, with very little change from the previous week.
- 30-year fixed-rate mortgage: 2.8%
- 15-year fixed-rate mortgages: 2.33%.
- 5/1 Adjustable Rate Mortgage (ARM) rate: 2.87%.
Year-over-year, mortgage rates are down 0.95 basis points for 30-year fixed-rate loans, 0.85 basis points for 15-year fixed-rate loans, and 0.53 basis points for 5/1 ARM loans. The current rate trend could be chalked up to a slowdown in the economic recovery.
If you're looking to take advantage of low refinance rates to lower your monthly payments and cut the life of your home loan, then use a rate-shopping site like Credible to compare mortgage lenders before you refinance your mortgage.
Will mortgage rates keep dropping?
Here are some key reasons why you could continue to see below average rates for mortgages and refinance loans in the coming months:
- Consumer debt is shrinking
- Bank deposits are increasing
- Adverse market fee delayed
- The Federal Reserve is committed to keeping rates low
1. Consumer debt is shrinking
One reason the mortgage rates decline could be here to stay for the short-term has to do with borrower demand. If Americans are inclined to borrow less, that could be an incentive to keep rates low to encourage new mortgages and other loans.
According to Federal Reserve data, total household debt declined for the first time since 2014 during the second quarter of 2020. Americans are making a dent in balances for credit cards, student loans, car loans and other debts, which may help curb mortgage rates through the fall.
Credible can help you compare lenders and save on interest without impacting your credit score. You can complete the entire origination process — from comparing loan rates up to closing — all in one place.
2. Bank deposits are increasing
While Americans are paying off debts, they're also stashing more of their money in the bank. The Federal Deposit Insurance Corporation (FDIC) reported increased bank liquidity levels through the first and second quarters of 2020, with bank deposits increasing by more than $1 trillion.
That means banks have more capital to lend to borrowers who are looking to get a home loan right now. If you have a strong credit history and credit score, you could reap the benefits of that by cashing in on low mortgage rates.
3. Adverse market fee delayed
Earlier this year, the Federal Housing Finance Agency (FHFA) announced it would implement an adverse market fee on new mortgage refinance loans. While mortgage lenders are responsible for the fee, it's been suggested that the fee could be passed on to homeowners in the form of higher refinance rates. The Mortgage Bankers Association estimated it would increase the average cost of refinancing by $1,400.
The fee, which was set to take effect September 1, has been delayed to December 1, giving you more time to refinance your mortgage if you already own a home. That means banks have less incentive to raise mortgage rates until the fee takes effect.
4. The Federal Reserve is committed to keeping rates low
The Federal Reserve sets the federal funds rate doesn't affect conventional mortgage rates directly but banks can take their cue from the Fed when it comes to deciding whether to lower interest rates.
When inflation is low, as it is now, banks can cut mortgage rates to encourage borrowing. In an October speech at the National Association for Business Economics Virtual Annual Meeting, Fed chairman Jerome Powell reiterated his decision to keep the federal funds rate low for the time being. Earlier this year, Powell suggested that rates could remain low for at least another two years into 2023.
If you’re a homeowner, compare mortgage rates with Credible to see if you can save, but don’t forget about closing costs, which could neutralize any savings you gain from a lower monthly payment.
How to take advantage of low mortgage rates
With a mortgage rates decline likely to stick around for a while, that could be an opportunity to get a great deal on a home loan if you're tired of renting and ready to buy. If you haven't checked your credit history and credit score lately, you may want to do that first. From there, you can use an online mortgage calculator to estimate your monthly payments.
You can also run the numbers through a mortgage refinance calculator to determine how much you could save with a refinance loan.
Whether your financial goals include buying a home or refinancing your mortgage, it helps to work with a professional. Connect with Credible's experienced loan officers today to get all of your home buying and refinancing questions answered.