Despite the slight increase in mortgage rates this week, we’re still in a low interest rate environment. (Photo by Burak K from Pexels).
Michaela Phillips, Guaranteed Rate, Inc.
The global economy is reeling from the effects of COVID-19, also known as the coronavirus. To cushion the economy from the effects of a slowdown, the Federal Reserve took drastic emergency measures and slashed the federal funds rate by 1.00 percent to a range of 0 to 0.25 percent. This rate cut follows on the heels of a 0.5 percent rate reduction just two weeks ago. Although interest rates have fallen, this doesn’t necessarily mean that mortgage rates will be more favorable. This is a volatile time, and we can expect changes to continue. Although the situation is in flux and will likely evolve, here’s what we currently know about how coronavirus responses are affecting mortgage rates:
How mortgage rates are determined
Mortgage rates are determined by the bond market in the form of mortgage-backed securities, rather than the 10-year Treasury note. Mortgage-backed securities are asset-based securities. Mortgage-backed securities are created when a bank sells the loan to an investment bank. The investment bank then groups together hundreds or thousands of loans of similar interest rates to be sold on the bond market. The price of these bundled securities is influenced by global and national news events, which then affects individual interest rates.
How mortgage interest rates are faring currently
The coronavirus pandemic has caused mayhem in markets both domestically and abroad. Interest rates have fluctuated quite a bit these past few weeks, with record-lows seen early March followed by a slight spike later in the month. With news of lower interest rates, lenders have been flooded with applications from individuals interested in refinancing or securing a mortgage loan. Due to unprecedented demand, many lenders have had no choice but to raise rates to allow themselves time to respond to customer demand.
Many lenders have been scaling back staff in recent months in anticipation of higher rates and a slower season. However, the coronavirus pandemic has caused a significant economic upset and temporarily caused interest rates to fall. Since most lenders lack the capacity to keep up with the influx of applications (refinancing applications, especially), the 30-year fixed-rate mortgage is now averaging 4.75%, up from 3.29% the previous week.
As coronavirus continues to spread globally, we face uncertain times. The impact on the economy is proving difficult to predict, but many economists expect that rates will fluctuate in the coming months.
We’re living in an unprecedented moment. Although the markets are in turmoil, the housing market may remain steady if consumer confidence isn’t too shaken. Despite the slight increase in mortgage rates this week, we’re still in a low interest rate environment. If you’re ready to purchase a home, now may be an excellent time to explore rates.
By Michaela Phillips. Michaela is the Vice President of Mortgage Lending at Guaranteed Rate, Inc. Contact Michaela at 303.443.6292, e-mail [email protected] or visit michaelaphillips.com. NMLS: 312874.
