Mortgage rates dropped again last week to below 5% for conventional 30 year mortgages and will possibly break the recent record set in January when mortgage rates briefly dipped below 5% and then popped back up again. Fifteen year mortgages averaged 4.61% last week, down from 4.64% the week before. Based on recent market conditions and actions by the Fed and Treasury, the next few weeks may offer the best timing to refinance or purchase a new home that we’ve seen in decades, and perhaps for decades more.
What’s driving the rapid decline in rates?
The market had widely anticipated that the Fed was going to enact monetary policies favorable to mortgage rate declines, which has been depressing rates enough to drive mortgage refi deals at a breakneck pace. Note, that the recent decline is from last week’s data, PRIOR to the unanticipated timing of yesterday’s announcement that it would buy up to $300 Billion in Treasury securities on the open market. I would anticipate that the weekly numbers for this week come in even lower. The Fed also plans to purchase an additional $750 Billion in mortgage-back securities from Fannie Mae.
This announcement took the market by such surprise that the yield on 10-year Treasurys plummeted a half percent, which hasn’t occurred in over 20 years. Given the rapid reaction, instruments that short treasuries took it on the chin yesterday; perhaps setting up an optimal entry point to short Treasuries moving forward via leveraged short Treasury ETF/Fund options that exist. This play has worked well this year, one of the only asset classes up for the year in a down market.
If you’re Not Refinancing now, What are you Waiting For?
While the near term refinance rate environment looks good, it may not last and rates may not go much lower. Interestingly, when refinancing activity picks up like it has recently, the volume can actually overtake the staffing and lenders are sometimes reluctant to offer the lowest possible rate, so they can stay afloat, especially given the thinning of the ranks that has occurred following the housing bust.
If you’re considering refinancing, you’ll want to use a Mortgage Calculator, check out how to use Net Present Value calculations to perform and apples to apples comparison of the various mortgage offers out there since they come in all shapes and sizes, with different fees, closing costs and rates. Apparently, even the 50 year loan is becoming popular with its much reduced monthly payment structure. And more importantly, you’ll want to check out what the reading community is saying about how they’re getting the lowest refinance rate based on their experiences. I’m partially through the process now and will report back once everything is finalize – as of now, it’s looking like a great deal!
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