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Drop in mortgage rates is expected to re-energize refinancing

MoneyWise logoMoneyWise 3/26/2020 Doug Whiteman
a house covered in snow: Drop in mortgage rates could encourage refinancing © Jeffrey Czum / Pexels Drop in mortgage rates could encourage refinancing

Mortgage rates have fallen for the first time in weeks and are down sharply from a week ago, thanks to the Federal Reserve's steady offensive against the coronavirus financial crisis.

Recent increases in mortgage rates caused refinancing to cool down, but a lenders trade group expects the refi requests to start flowing again now that rates are going back down and are offering homeowners better savings.

Compared to a year ago, "consumers save nearly $60 per month — or $700 per year in payments — for every $100,000 borrowed," says Tendayi Kapfidze, chief economist at LendingTree. "Interest savings add up to about $20,000 over the 30-year term of a typical mortgage."

Mortgage rates head back toward their record lows

a sign on the side of a building: 1599686sv / Shutterstock Mortgage rates are down this week. © Provided by MoneyWise 1599686sv / Shutterstock Mortgage rates are down this week.

Mortgage rates are lower this week, with the benchmark 30-year fixed mortgage rate averaging 3.50% in the week ending March 26, mortgage company Freddie Mac reported on Thursday. That's down from 3.65% last week, and it's lower than a year ago, when rates were averaging 4.06%.

The rates in Freddie Mac's survey come with an average 0.7 point.

Mortgage rates had been rising since the first week in March, when 30-year loans hit a record 3.29%, on average, the lowest in the nearly 50-year history of the weekly Freddie Mac survey. Now, rates are looking more attractive again.

"The Federal Reserve’s swift and significant efforts to stabilize the market were much needed and helped mortgage rates drop for the first time in three weeks," says Sam Khater, Freddie Mac’s chief economist. "The combination of the Fed’s actions and pending economic stimulus will provide substantial support to the mortgage markets."

The Fed slashed a key short-term interest rate to close to zero and announced it would buy up Treasury bonds and mortgage-backed securities, with no limit on those purchases.

Meanwhile, a bill making its way through Congress would stimulate the economy by giving Americans cash payments of up to $1,200, expanding unemployment benefits substantially, and providing financial assistance to businesses and industries.

Refinances expected to heat up again

a hand holding a cell phone: Andrey_Popov / Shutterstock Lower rates are likely to turn up the heat under refinances. © Provided by MoneyWise Andrey_Popov / Shutterstock Lower rates are likely to turn up the heat under refinances.

The recent actions by the Fed "could put downward pressure on mortgage rates, allowing more homeowners the opportunity to refinance," says Joel Kan, the associate vice president of forecasting for the Mortgage Bankers Association.

The trade group reported on Wednesday that mortgage refinance applications sank 34% amid last week's higher mortgage rates. Mortgage applications overall were down 29.4% last week.

LendingTree reports that even during the recent rebound in mortgage rates, demand for refinance loans was sizzling and overwhelmed mortgage originators.

Refinance applications tripled from a year ago in each of America's 50 largest cities and in 45 out of the 50 states, according to LendingTree's data.

Refi opportunities are greatest in cities and states where average credit scores are higher and where home prices are rising more quickly, according to LendingTree's Kapfidze.

Other mortgage rates this week

a screenshot of a video game: zstock / Shutterstock Rates on other home loans are mixed this week. © Provided by MoneyWise zstock / Shutterstock Rates on other home loans are mixed this week.

Rates on other popular types of mortgage loans are mixed this week.

The average for a 15-year fixed-rate mortgage has slid to 2.92%, according to Freddie Mac. Last week, the typical rate for those loans — which are a popular for refinancing — was 3.06%. A year ago, 15-year fixed home loans were averaging 3.57%.

Rates on 5/1 adjustable-rate mortgages have gone up for a second straight week. Those "ARMs" are fixed for five years and then can adjust up or down every year after that.

ARMs are currently being offered at an initial rate of 3.34%, up from 3.11% last week. A year ago at this time, the starter rates on ARMs were at 3.75%, on average.

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