July 10, 2019
Mortgage interest rates have hit their lowest levels since 2016. The favorable environment now opening up for consumers is sending ripple effects through the economy.
As the Federal Reserve moves closer to easing monetary policy, there's no immediate sign that the near-record low rates will reverse.
The most recent Freddie Mac rate report had the 30-year fixed rate at 3.84%. When these reports began in 1971, that rate stood at 7.33 percent. The all-time low rate came in 3.50% in March 2013. If anything, the Fed's current policy may push rates lower than they are currently.
For consumers, this has resulted in two noticeable trends. First, there has been an increase in refinancing applications as homeowners take advantage of the lower rates. Many homeowners can save at least half a percentage point of interest by refinancing, Bloomberg reported.
Analytics firm Black Night reported as many as 8.2 million homeowners can benefit from refinancing right now — and many of them are doing so. Black Knight had estimates for closed refinances rising by 30 percent in April, while May's volumes were estimated to be three times higher than the ten year low seen in November 2018.
Bond markets are feeling the effects of this uptick in activity, especially as digital mortgage apps speed up the process for consumers. From Bloomberg:
That’s good news for borrowers who can refinance faster than before. But it’s trouble for investors in the $7.3 trillion mortgage bond market, who will find their money getting returned to them sooner than they had expected, even compared to past times when home loan rates were falling. They will probably have to reinvest the money they get at lower yields. Investors that paid more than face value for their bonds could get particularly hurt, because they’ll get repaid at 100 cents on the dollar.
The second effect of lower mortgage rates has been a rise in prepayments, which more than doubled over the last four months, according to Black Knight. Savvy homeowners who are paying attention see an opportunity save a sizable chunk of money.
Nowhere is this more apparent than with adjustable rate mortgages (ARM).
"ARM prepayment rates have now jumped to their highest level since 2007 as borrowers have sought to shed the uncertainty of their adjustable-rate products for the security of a low, fixed interest rate over the long haul," Black Knight Data & Analytics President Ben Graboske said in the firm's most recent report.
One of the key takeaways of the Black Knight report is that homeowners are paying close attention to what's going on with mortgage rates. Even those with mortgages that originated in 2018 are looking to refinance under more favorable terms.
The climate for homeowners is strong in 2019. The data is beginning to show clearly that this is making a significant impact.
Gregory Englesbe is an Investment Banker and business leader living in Cherry Hill, New Jersey. An experienced mortgage banking professional, Greg has secured more than $500 billion in sales throughout his 30 years in the residential mortgage business.
