Mortgage rates have sunk to near record lows in early 2020, as a series of interest rate cuts from the Federal Reserve and recent jitters in the bond market have made borrowing more attractive. Our expert has some timely advice on what this means for homeowners and would-be borrowers.
Bankrate’s data show that the current average 30-year mortgage has fallen to around 3.7 percent, so it seems like an ideal time for new borrowers as well as those looking to refinance.
And with the average borrower paying more than 4.4 percent, according to a recent Bankrate survey, it looks like many homeowners can save thousands by refinancing. And of course, new borrowers may be able to lock in a rate that’s among the lowest ever offered.
(Our panel provides mortgage rate predictions each week in the Rate Trend Index.)
We spoke with Greg McBride, CFA, Bankrate chief financial analyst, to understand more about what’s going on in the mortgage market, where rates are headed and what borrowers can do.
Wow, this mortgage market has really taken off when rates dropped. What’s going on?
McBride: Nothing spurs mortgages, and refinancing activity in particular, like low rates. The coronavirus scare has prompted a flight to quality among investors that has brought bond yields and mortgage rates to the lowest levels in more than three years. But the surge in refinancing can be fleeting – a rebound in rates back to levels where we started the year would temper the application flow real quick.
So the mortgage market is shaping up for a good 2020?
McBride: Things are lined up to be a great year. The surprise plunge in rates to start the year has spurred a surge in refinancing activity that wasn’t expected and with unemployment at 50-year lows, there are plenty of would-be home buyers in the market. Both purchase and refinance originations will be strong this year – oftentimes it’s only one or the other.
Housing supply seems pretty tight in many markets right now – will that hurt mortgages?
McBride: The lack of supply means a low ceiling for the housing market and by extension, the purchase mortgage market. Fortunately, refinancing has started off 2020 with a bang – much more than expected – so it’s still a good time in the mortgage market.
And what are the best moves for homeowners to make this year?
McBride: Homeowners would be wise to evaluate whether or not they’re candidates for refinancing. Check your credit reports, fix any errors, and pull together your bank statements, paystubs, tax returns, and documents needed so that you’re ready to roll. I’d do that now so that you can take advantage of low rates. Procrastinating runs the risk that the opportunity passes you by with a modest rebound in rates, or puts you at the back of the line if rates drop further, refinancing applications keep growing, and only then are you scrambling to pull things together.
What about potential borrowers?
McBride: Would-be homebuyers should take the steps necessary to improve their credit like fixing errors and paying down debt, but also boosting savings and positioning yourself to put your best foot forward when you are ready to apply for a mortgage. And use some of the online calculators to figure out how much house you can afford and what the costs of a mortgage and homeownership mean to your monthly budget. Do that before you start home shopping.
So rates are low and credit is available – are we in a “goldilocks moment” for homebuyers?
McBride: A “goldilocks moment” is a good way to put it, at least from the standpoint of qualifying for a mortgage and getting a low rate. Not so much from the actual home purchase standpoint, given the limited inventory within affordable price ranges in many markets. But low unemployment, increasing household income, and really low mortgage rates are definitely a great backdrop for those looking for a mortgage to buy a home.
Anything else borrowers should focus on?
McBride: Don’t bite off more than you can chew by buying a house that is only affordable if your income and employability never decline. We will get an economic downturn at some point – I don’t know when, but we will – and you want to make sure you can still afford the house if your income declines, or you go through a period where your two-income household is a one-income household.
I also cannot overstate the importance of savings – not just for the down payment and closing costs, but for your emergency fund and the ability to continue saving for emergencies and retirement even after you buy the home. Leave yourself some margin of safety. Being house poor is no place to be.