Americans have been enjoying historically low mortgage interest rates for years now, making financing a home more affordable. But how much longer can the rates continue to scrape the bottom?
The Fed already made plans in December 2015 to increase the interest rates, which will impact the rates you could be paying on your mortgage in the near future. But what’s happening outside of American soil also has an effect on our mortgage rates. Global economies, such as those in China and Greece, have been up in arms over the recent past.
And with news that the UK will be breaking away from the European Union, markets all over the world – including here in the US – will most likely be affected in some way.
Brexit was unexpected, and caused stock markets all over the world to plummet. The Dow Jones tanked 600 points immediately following the vote, and S&P 500 futures were down 3.2%. The German index dropped 10%, and France’s index plummeted about 7%.
The question is, what is Brexit’s effect on mortgage rates in the US?
US Mortgage Rates Drop to 3-Year Lows Following Historic Brexit Vote
After Brits voted to separate the UK from the EU, mortgage rates nosedived right along with global stock markets. Rates dropped 0.125% the day after Brexit’s vote stunned the world, and are now on their way to hitting all-new lows as 30-year fixed rates drop under 3.5%.
Sounds good for American homebuyers, but what’s the link between Brexit and US mortgage rates?
The ambiguity swirling around global stock investments is pushing investors to seek out safe-haven investments, and US mortgage bonds are fitting the bill. These bonds are considered to be some of the safest across the globe because they’re made up of US mortgages that are only approved with rigorous lending requirements.
After the housing crash of 2008, lenders tightened their boot straps and made lending requirements much more stringent in an effort to avoid another disaster. As such, borrowers are now making sure their finances are in good order and their credit scores are beefed up in order to get approved for a mortgage.
Such strict underwriting practices have helped to ensure that mortgage defaults stay low. The national delinquency rate on first mortgages in May this year was approximately 0.63%, down six basis points in comparison to the month before. It was the third month in a row that the default rate on first mortgages decreased. The national default rate on first mortgages in April was approximately 0.69%, down eight basis points as compared to March.
Such stability has prompted an increasing number of investors to sell off their riskier global stocks in favor of safer US mortgage bonds. As mortgage bond prices increase on heavier purchasing, the yields (or rates) of these bonds plummet. Even the smallest decrease in mortgage interest rates can mean huge savings for the average homeowner.
Let’s say you’ve currently got a $250,000 home loan. If your rate dipped just 0.25% from 3.75% to 3.5%, you could be paying $35 less per month towards your mortgage, or roughly $420 a year. Over the life of your mortgage, that tiny decrease in your interest rate can save you $12,664.
What’s in Store For Mortgage Rates in the Near Future?
Whether mortgage rates will continue to decline or will start to increase is up for debate. When rates are affected by political unrest, their future movements can be rather tough to predict.
Some experts anticipate a gradual increase in mortgage rates as the sting of Brexit alleviates over time. But there’s also a growing belief that low rates are here to stay, at least over the short-term.
Whatever the case may be, economic and political chaos across the pond has a big impact on what happens on home soil. In response to Brexit, the Federal Reserve has decided to hold off on increasing interest rates as an effort to stave off any increased risk of a US recession.
Such conflicting sentiments point to unpredictability in the movement of mortgage rate over the next few months. If the current drop meets your specific financial goals, then it might be a good idea to speak with your lender about refinancing at a lower rate. Just keep in mind that there may be penalties to pay for cutting your current mortgage short.