Think about refinancing your mortgage? Rates are back near record lows — at least for strong-credit borrowers seeking 30-year, fixed-rate loans.
On Thursday, Freddie Mac said the average rate for a 30-year mortgage was 3.33%, with 0.7 points paid, for the week ending April 2. 3.29%, set last month.
That’s good news for many borrowers who missed record low rates. It is also an important indication that problems in the credit and bond markets — which had led to the recent surprising spike in mortgage rates, even as other interest rates fell amid the coronavirus panic — starting to heal.
However, not all borrowers will benefit from it at least to the same extent. While the average interest rate for 30-year fixed-rate fell back to close to its record low, the average for five-year adjustable loans peaked at 3.40%. It’s the first time in at least a decade that short-term adjustable-rate loans have been more expensive than longer-term fixed-rate loans, a relationship that economics textbooks say should be reversed.
“Markets are erratic,” said Keith Gumbinger, vice president on mortgage site HSH.com. “They will remain erratic.”
Within the mortgage market
Interest rates have fallen sharply in the weeks since COVID-19 spread around the world, and more recently, when it became clear that the virus would shut down large parts of the US economy.
But after a record low for the week ending March 12, mortgage rates rose. That’s partly because lenders were inundated with a deluge of applications and partly because, when the stock market went into freefall and many investors rushed to raise cash, the mortgage-backed bond trading market took hold. Without major institutional investors to buy mortgage-backed bonds, mortgage lenders struggled to extend new loans to homeowners.
From March 15th the Federal Reserve began to intervene, first, he pledged to buy $200 billion in mortgage-backed bonds, and an unlimited amount the following week. Despite some hiccups, the program has gradually helped large swaths of the mortgage bond market return to normal, said Joel Kan, associate vice president of economic and industrial forecasting at the Mortgage Bankers Association.
What it means to you
One advantage of the Federal Reserve’s bond-buying program is that it only includes bonds backed by government agencies such as Fannie Mae and Freddie Mac. That means while borrowers who qualify for: a so-called “qualified mortgage” – those who can meet credit score, down payment and income documentation requirements – may be able to refinance again at near record rates.
The bad news is that homeowners who don’t meet those standards may pay a lot more or have trouble finding a lender. That includes borrowers seeking large-dollar “jumbo” loans that exceed Fannie and Freddie’s limits, as well as those who are self-employed or otherwise faced with punches that prove they have a steady income. have, said Gumbinger.
It also includes homeowners looking for adjustable-rate mortgages, as those loans are rarely sold to government-backed agencies and FHA borrowers. Although FHA loans are government-insured, those loans usually go to riskier borrowers, with less equity and sometimes compromised credit, and many lenders remain skittish.
“If you’re not a borrower who fits into the mainstream mortgage pipeline, you’re going to have a hard time,” Gumbinger says. “And the further you are outside the mainstream, the harder it will be.”
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