Historic Low Rates: Is It Time to Refinance?
Every corner of the planet is being impacted by the coronavirus outbreak.
As a result, central banks around the world are scrambling to combat the coronavirus pandemic and subsequent economic fallout. The Federal Reserve and Bank of England (BOE) both unveiled dramatic quantitative easing programs and key interest rate cuts, while the European Central Bank (ECB) announced a bond-buying program.
Specifically, in an emergency meeting last weekend, the Fed cut key interest rates to 0%-0.25%, down from 1.0%-1.25%. It also announced that it would buy $500 billion in Treasuries and $200 billion in mortgage-backed securities. More than $250 billion worth of Treasuries were purchased in the past week alone.
These measures are primarily aimed at stimulating the U.S. economy, but the real winners will be U.S. homebuyers.
In the wake of the Fed’s key interest rate cut Treasury yields plummeted, and the 10-year Treasury now stands at about 1.06%. This is worth mentioning because the 10-year Treasury serves as a benchmark for 30-year mortgage rates. The two often move in lockstep.
As a result, mortgage rates have also fallen to historic lows.
These low rates are inspiring many first-time homebuyers to purchase a home, and current homeowners to refinance at better rates. In fact, mortgage applications for house purchases has climbed 11% year-over-year, and applications to refinance have surged 402% year-over-year.
Interestingly, due to the recent surge in mortgage and refinance applications, rates have started to shift higher. Banks have been overwhelmed with the rise in applications, and some lenders have increased rates in order to profit from the boom.
According to the Mortgage Bankers Association, the average 30-year fixed-rate mortgage now stands at about 3.74%. That’s up from 3.47% in the previous week. Given the spike in rates, refinance applications dropped 10% and mortgage applications dipped 1% in the past week.
Still, with historic low rates, the question remains: Is now the time to refinance?
The current environment is giving many homeowners an unprecedented opportunity. By locking in a lower mortgage rate, homeowners will have more money in their bank accounts, money that may be needed during this crisis. And, given the current uncertainty overshadowing the economy and world, it’s certainly a tempting opportunity.
You can be sure that during uncertain times like today, it makes sense to review all of your finances.
At Nicollet Investment Management we are here to help. Give us a call if you have any questions or would like our help with a portfolio review.