The tumbling stock market has brought with it one last hurrah to capture low mortgage interest rates. If you were thinking about taking cash out of your home and refinancing — or if you were on the fence about buying, now would be the time.
Since hitting an all time low of around 3.34 percent in late 2012, the average rate on a 30-year fixed mortgage according to MortgageNewsDaily had steadily fought to get back above 5 percent. It finally did early last November. Then suddenly, investors got nervous about the thought of an impending recession, and about trade deals with China, and the stock markets freaked. Most ended the year lower than where they started.
Mortgage interest rates are loosely pegged to the 10-Year Treasury Yield. That yield, and mortgage interest rates, go up when investors are buying stocks instead of Treasury bonds. And they go down when the opposite is true. As the stock market sank, investors ran to the safety of bonds, and mortgage interest rates fell 0.5 percent to about 4.5 percent.
Before the drop, homebuyers and homeowners were having a hard time getting used to the idea of a 5 percent-rate. For roughly the last six years, they had been used to rates under, or near, 4 percent. Many of my younger clients didn’t believe me when I first told them. They thought I was nuts.
My older clients were different. The 5 percent-rate still paled in comparison to the above 10 percent rates they had to deal with throughout most of the 1980s. Freddie Mac’s average rate for a 30-year fixed mortgage peaked in October 1981 at a whopping 18.45 percent!
We have certainly enjoyed historically low rates lately. When rates dropped below 5 percent in January of 2009, it was the first time in recorded history they had ever done that (aside from a very brief time during WWII when no one was buying homes). Because of that, it is easy to think that the 4.6 percent average rate that we are enjoying right now, isn’t here to stay very long. It dropped quickly since last November, and it could very easily go back up quickly.
If you have been considering taking equity out of your house to remodel, or to make a significant purchase, now could very well be your last chance to capture a sub-5 percent rate. If you are locked into an FHA rate and are ready to convert to conventional where that disturbing mortgage insurance eventually goes away, now would be a good time to take a look. If you have been thinking about making a purchase, the housing market has cooled considerably and has shifted back toward becoming a buyer’s market again. So now might be a good time.
Geoff Smith is a mortgage banker with Assurance Financial focusing on residential home loans for refinances and home purchases.
* The views and opinions expressed in this column do not necessarily reflect the views of Assurance Financial Group