Recently, however, the housing market has taken an unexpected turn, and house hunters could snag a bargain mortgage rate not seen in years. This sharp decline in borrowing costs has triggered a wave of interest among homebuyers and owners looking to refinance, and of note, among real estate investors. Rate drops translate into lower monthly payments, more purchasing power and in many cases, a new lease on financial stability. But what exactly does this falling rate mean for you and how you can put it to work?
In this column will we will provide an explainer on why Mortgage Rates Plunge, who stands to gain the most from this decline, and what you can do to take advantage of today’s lending market regardless of your intended disposition.
Why Did Mortgage Rates Plunge?
The rates for mortgages are largely dependent on the overall state of the economy, reflecting inflation, the Federal Reserve’s decision on interest rates, the state of the housing market and the overall trend for interest rates. When inflation slows, or when investors seek out safe assets, mortgage rates tend to drop.
Here are a couple of the reasons behind these declines of late:
- Economic Uncertainty – When uncertainty is elevated, investors typically move money into safer assets like U.S. Treasury bonds. When bond prices climb, yields fall, dragging mortgage rates lower.
- Inflation – See Interest Rates Inflation Cooling – Interest rates tend to track inflation too. Rates have adjusted lower as inflation shows signs of cooling.
- Federal Reserve Policy – The Fed doesn’t set mortgage rates directly, but its decisions on interest rates have a major impact on them. More recently, signs of rate cuts have been buoying the mortgage market.
- Housing Market Update – Given home affordability issues in much of the country, lower rates are viewed as a knob that needs to be tugged to juice buyer demand.
What a Drop in Mortgage Rates Means for Homebuyers
And for people in the market to buy a home, a decline in rates is meaningful. Lower mortgage rates will also mean lower monthly payments for the same loan amount. For instance, a 30-year fixed mortgage at 7% versus 6% could mean saving hundreds per month.
Here’s how buyers can benefit:
- More Buying Power: Lower rates enable buyers to qualify for a more expensive property while maintaining the same monthly payment.
- Easier Loan Approvals: Lenders make their DTI calculations based on monthly payments. Lower payments could also increase your chances of approval.
- Long-Term Savings: Just a 1% reduction in interest rates can lead to tens of thousands of dollars in savings over the term of a loan.
If you’re thinking about purchasing a home, it’s likely that you can take advantage of these low home loan interest rates right now, and now is a good time to get your home buying process started with our Online Mortgage Application and lock in your interest rate before it goes any higher.
Impact on Refinancing
The drop in mortgages is good news for buyers, but there’s also good news for homeowners, more of whom are now eligible to refinance their existing loans. If your current mortgage has a higher interest rate than the rates available today, refinancing could be a good way to:
- Lower your monthly payment
- Pay off your loan faster
- Switch from an adjustable-rate to a fixed-rate mortgage
- Tap into home equity for renovations or debt consolidation
Refinancing becomes more enticing when you can lower your interest rate by 0.5% to 1%. With rates falling so low, millions of households could save by refinancing.
How to Take Advantage of Lower Mortgage Rates
Even with the lower rates, however, home buyers must step up their mortgage application game if they want to play in the Monterey area, and that means getting prepared. Here are key moves to help you take advantage of today’s market:
1. Get Pre-Approved Early
Mortgage pre-approval shows you’ve done your homework and can borrow enough to purchase a home. Many question How Long Does Mortgage Pre-Approval Take, and the answer is when done using proper pre-qualification methods about an hour to receive a pre-qualification letter, about two or three days to receive a pre-approval letter and there are other lenders who can take longer. With pre-approval, you can make decisions quickly when you find the right home.
2. Compare Lenders and Rates
Lenders don’t all have the same mortgage rates, even when it comes to the lowest points they are willing to charge or not charge. By shopping around, you’re able to take advantage of the best deals and potentially save thousands over the life of your loan.
3. Understand Mortgage Documents
Before you put your signature on the dotted line, it’s important to know what you’re getting into. For example, as we learned What Is a Mortgage Deed is important because it will determine ownership and lender rights in the event that you default.
4. Consider Loan Types
Fixed-rate loans also offer a way to plan for rising rates because the interest rate stays the same for the life of the loan, versus ARMs, where the interest rate may start lower than fixed-rates, but could go up. With rates at historic lows, most buyers currently are gravitating toward the fixed rate in order to save as much as they can.
Regional Differences in Mortgage Rates
Mortgage rates do not always rise and fall in lockstep across the country. Your own market’s appetite for housing, state regulations and the regional economy all have a similar effect on the rates you’re offered.
For example, a potential customer might be comparing mortgage rates in Alabama to national averages. Keeping abreast of state-specific borrowing trends will help you get a clearer understanding of what you’re able to borrow.
What About Credit Unions and Specialized Lenders?
Though banks and online lenders are known for this type of lending, credit unions may be especially rigid with their interest rates or terms to members. If you’re a member, for instance, you might take a look at what SECU Mortgage Rates are compared to other traditional lenders to see if you’re eligible to get an even better deal.
Is Now the Right Time to Buy or Refinance?
The crucial question in all this is: What should I do? Should I take action now, or should I wait for even lower rates? Although nobody can predict the market with certainty, there are a few things to keep in mind:
- Affordability – If the latest rate plunge would make a home or refinance affordable, it could be a good time move sooner rather than later.
- Housing Inventory – Usually when rates are low, it can cause more of a competition in the housing market. Purchasing today could be a way to lock in a home before demand rises.
- Financial Security -Make sure your income, credit, and savings are stable enough to sustain the obligation of homeownership.
Risks of Waiting for Lower Rates
Even as rates tumble downhill, they might have a tiny bit further to fall. However, waiting comes with risks:
- Rates Could Climb Again – If the inflation boiler heat rises again or the Federal Reserve changes policy, rates could increase.
- Higher Home Prices Lower rates often lead to increased demand, eventually raising home prices. Even if they do, a lower rate may not make up for the higher cost of a more expensive home.
- Lost Time Building Equity – You’re not accruing equity as you’re sitting on the sidelines feeling anxious.
The Bottom Line
The most recent drop in mortgage rates has a perfect opening that benefits both homebuyers and homeowners. And whether you’re entering the market for your first home, moving up or upgrading to a larger home, or even looking to refinance, today’s distinctly low rates will help you save for the long haul.
And some ways to take advantage of it:
- Begin with an online application to explore your options
- Get pre-approved quickly so you can move fast when you find a home
- Compare lenders and rates, including credit unions like SECU
- Educate yourself on mortgage documents, such as the mortgage deed
- Stay updated on local market conditions, such as Alabama mortgage rates
The housing market could still keep going, but grabbing the benefits of today’s lower rates can lock in your own better financial future.