The Borrower's Big Mistake?
The average rate on the popular 30-year fixed mortgage hit 3.70% on Friday, the lowest since November 2016, according to Mortgage News Daily. That rate will likely dip even lower Monday, as bond yields continue to fall.
The last week meant that 8.2 million 30-year mortgage holders could likely qualify for a refinance and save at least 0.75% off of their current interest rate by doing so, according to a new tally by Black Knight, a mortgage software and analytics company.
The size of that population, however, is still very sensitive to even the slightest rate moves, since so many borrowers have already refinanced to very low rates. Just a one-eighth of a point move lower could add another 1.5 million borrowers to the eligible refinance pool, and the same move in the other direction would knock 1.3 million out.
“Lower rates have also increased the buying power for prospective homebuyers looking to purchase the average-priced home by the equivalent of 15%, meaning that they could effectively buy $45,000 ‘more house’ while still keeping their payments the same as they would have been last fall,” said Ben Graboske, president of Black Knight Data and Analytics.
“As affordability pressures have eased, it also appears to be putting the brakes on the home price deceleration we’ve been tracking since February 2018,” he added.
Rates are now incredibly favorable for both refinance and home purchase, consumers still need to shop around for the best rate. But a full one-third of them are not, according to a new survey from Fannie Mae. The vast majority of consumers will comparison shop for other products, but mortgages are apparently too daunting.
“Unfortunately, comparison shopping for a mortgage can be a much more complicated and time-consuming endeavor. Simply evaluating the ‘price’ of a mortgage involves looking at several interrelated components – including rates, fees, and points – and making an assumption about how long a borrower will stay in that mortgage,” noted Fannie Mae’s chief economist, Doug Duncan, in the report.
“While it’s easy to find “teaser” rates advertised online, a true mortgage quote is based on a handful of variables that are unique to each buyer and evaluated differently by each lender,” he continued.
Consumers instead tend to rely on advice from family and friends or simply go to the same lender they’ve used before.
“Non-shoppers also reported much less concern with competitive terms when selecting a lender, citing other non-financial priorities, such as customer service/responsiveness and having a preexisting account with a lending institution. Individual households may have good reason for accepting that tradeoff,” added Duncan.
Mortgage rates have been quite volatile lately, so borrowers who could benefit from a refinance will need to act quickly. Rates could move lower, but different lenders will be responding to the changing market conditions at different paces.
“Once the dust settles, however, we’re talking about a move to the “mid 3′s” for best-case 30-year fixed rates,” said Matthew Graham, chief operating officer of Mortgage News Daily. “Can rates go lower from here? Sure! Rates can always go lower.”
Of course if rates go into historically low territory, there will be pushback from both lenders and investors in the bonds that back mortgages, as they will both see diminishing returns. If fewer of those bonds are purchased, it could send rates back up.
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