Mortgage Rate Drops Below 4%

Last week, Freddie Mac reported an interest rate on a 30-year, fixed rate mortgage of 3.97%, representing the lowest level since June 20, 2013. This results from a number of factors. Interest rates typically move alongside the 10-year Treasury note, which reached a low of 1.86% last week. This is the first time that the yield has been below 2% since May 2013. Many investors prefer the safety of U.S. Treasury bonds given concerns about the economic weakness in Europe, Ebola, and geopolitical turmoil worldwide (such as the threat of the Islamic State militia group in the Middle East). This contrasts expectations of rising interest rates resulting from the Federal Reserve pulling back its economic stimulus of buying bonds and mortgage-backed securities.

Many homeowners have seized this opportunity to refinance. Bank of America reports that a .5% decrease in mortgage rates for a home worth $221,000 should result in savings of $50 per month. However, the Associated Press argues that mortgage rates should not solely dictate the decision to refinance, because doing so is costly. For example, it would cost approximately $2,500 in fees to refinance from a 5.5% to 4% mortgage rate on a $200,000 mortgage, taking roughly 14 months to break even.

Mortgage Rates Rise

Fox Business reports that, as of June 17th 2013, mortgage rates had risen for six straight weeks. In early May, the fixed rate was 3.52%. The benchmark 30-year fixed-rate mortgage further increased from 4.1% to 4.14% within the past week (Bankrate.com). Until the first week of June, the fixed rate had been below 4% since May 2012, an entire year earlier. Mortgage rates are no longer near record lows, as markets react to the supposition that the Fed may soon reduce its $85-billion-per-month bond-buying program. This program has helped keep rates low; however, once the Fed determines that the economy has recovered well enough to support itself, the program may be reduced or abolished altogether. 

While it's unlikely rates will return to their recent lows, they may stabilize. John Stearns, a mortgage banker for American Fidelity Mortgage Services in Mequon, Wisconsin, claims that 4% for a 30-year fixed is going to become standard.

The recent increase in mortgage rates has caused some people to urgently refinance their homes, as they are concerned rates will continue to increase. Jim Sahnger, a mortgage loan originator for FBC Mortgage in Jupiter, Florida, points out that mortgage rates are constantly changing, and that what someone can get today may not be available tomorrow. 

There are different ways to interpret this news. While the latest rates are nearly half a percentage point more than rates were this time last year, they are still much lower than the 6-7% people with older loans may still be paying. 

Read the full article here.