March 24th, 2020 10:35 AM by Jackie A. Graves
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.
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.
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.
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
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
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
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.
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