Investors are fleeing to safe-haven investments during the start of another rough week for the stock market. The 10-year Treasury yield fell Monday morning to a new record low of 0.318 percent.
The plunge in the Treasury yield is expected to push U.S. mortgage rates down even more. The 30-year fixed fell to 3.56 percent in Bankrate’s weekly survey last week.
The market turmoil is linked to the worldwide coronavirus outbreak. There are more than 100,000 confirmed cases of COVID-19 and more than 3,000 deaths to date, according to the World Health Organization. Worries about a slowing world economy impact the interest rates consumers pay.
Oil prices fell 30 percent over the weekend and the U.S. stock market opened sharply lower Monday morning, triggering trading restrictions.
Mortgage rates tumble post-outbreak
The first case of COVID-19 was detected on December 31, and just two days later the 30-year fixed-rate mortgage fell from 3.9 to 3.86 percent. Rates have been declining since.
“Anything that raises the specter of slower economic growth or produces a flight to quality in financial markets tends to be good news for mortgage rates,” says Greg McBride, CFA, Bankrate chief financial analyst. “The coronavirus threat has definitely fueled concerns about slower global economic growth and the prevailing uncertainty about how long the coronavirus will remain a threat or the actual economic impact are pushing rates down.”
How this affects borrowers
People shopping for homes will likely see lower rates in the coming weeks as the 10-year hits new lows. For existing mortgage borrowers, another drop in rates might clear the path for refinancing.
“The refinancing door has blown open with mortgage rates continuing to fall amid fears of slower global economic growth,” McBride says. “This helps those looking to refinance a mortgage as well as would-be homebuyers – provided they can find a home to buy.”
As rates tumble lower, consumers should be mindful of the traffic jam that will create. Expect lenders to be strained, which can slow down the borrowing process.
“Make sure to have your pay stubs, tax returns, bank statements, and other necessary documents together so there is no delay in processing. Many lenders will be bottlenecked and the applications that get worked will be those that have all their documents submitted,” McBride says.
Eligible borrowers who choose to go with higher payments, but significantly lower interest rates can get a 15-year fixed-rate mortgage for about 3 percent compared with a 30-year fixed-rate mortgage at 3.56 percent.
Finally, if you currently have an adjustable-rate mortgage (ARM), you’re likely enjoying the dip in rates, which is giving you a break in monthly payments. However, don’t count on rates staying low. As the coronavirus showed, there are always wild cards so trying to predict mortgage rates can end up costing you money later.
ARM borrowers might want to lock in a rate now by refinancing into a fixed-rate mortgage, while we’re still below 4 percent.
“If you plan to still be in the home at the point your adjustable mortgage resets, then refinancing into a fixed rate now is a compelling trade,” McBride says.
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