Wealthquest Fully Operational. Click Here For More Details.

Mortgage Refinancing: How the Market Downturn Has Provided an Interesting Opportunity

With coronavirus fears growing, millions of homeowners have been receiving surprisingly good news as mortgage rates continue to hit new record lows.

As of April 2, 2020, the national average rate for a 30-year mortgage has fallen to 3.33 percent, with an average of 0.7 points paid, according to data from Freddie Mac.(1) Mortgage rates have plunged back to the lowest levels in decades, yet overall mortgage applications were down 17.9% in the week ending April 3, 2020 according to the Mortgage Bankers Association.

Why Are Mortgage Rates Falling?

Since March, COVID-19 concerns have ignited volatility in the stock market. At the same time, bond markets have rallied as traders rush to purchase safe-haven assets such as U.S. Treasuries, which are backed by the United States government and a are considered safe havens even in tumultuous economic climates. Since investors are really competing to lend the government and other borrowers money, such bond prices rise, causing interest rates to fall.

Recently, yields on the 10year Treasury note fell to a historic low of 0.676 percent, extending their break below 0.7 percent for the first time ever.(2) While that means lower borrowing costs for the government, 10year Treasury notes are the key benchmark for 30year fixed mortgage rates, having a direct impact on their performance.

For the larger part of 2019, mortgage rates fell as U.S. economic growth waned and investors began to predict that the Federal Reserve would cut benchmark short-term interest rates. But, in the fourth  quarter, rates rebounded slightly before sliding sharply again this January. As of March 6, 2020, the average 30-year rate fell to an all-time low of 3.29 percent and mortgage applications jumped 30 percent from the week prior, according to the Mortgage Bankers Association.(3)

But then, as March continued on and the COVID-19 pandemic worsened, demand for refinance loans dropped, reversing the previous weeks surge.

What to Expect Moving Forward

Because mortgage rates have been sliding, you may be considering whether to refinance your loan. In short, no one really knows how interest rates will react as we continue to face the COVID-19 pandemic and the future ahead, which can make it difficult to make such a weighted decision.

According to CME Group’s FedWatch, traders are suggesting a 100 percent chance of a rate cut at the Fed’s April meeting, but that doesn’t mean mortgage rates will continue to decline.(4) In 2019, mortgage rates fell steadily throughout the spring as investors anticipated a rate cut. It wasn’t until early August that they actually rebounded slightly as banks acted on their interest rate policy.

Its possible that Treasury rates could continue to fall further, especially as fears associated with slowing global economic growth increase. But while nothing is preventing mortgage rates from falling further, another notable decline would place them in truly uncharted territory. Its important to keep in mind that things continue to change at a rapid pace. So if you are considering refinancing, crunching the numbers now is a good idea.

Should You Refinance Your Mortgage?

Taking advantage of todays low mortgage rates could save you thousands over time, but it may not make sense for every homeowner. According to real estate data and analytics firm Black Knight, it may only be worth the effort if you are able to replace your existing mortgage with one that is at a 0.75 percent lower rate.(5) This is because the cost of refinancing can reach a few thousand dollars once you factor in fees for appraisals, title searches, etc.

Black Knight estimated that 14.5 million homeowners would be good candidates for refinancing if mortgage rates fell to 3.25 percent, those of which may be characterized as homeowners with 30-year mortgages who have 20 percent or higher equity in their homes.(5) Because payments on a typical fixed- rate mortgage are focused on paying off interest rather than principal in the early years of the loan, it might take a few years to reach that equity threshold if your down payment was lower than 20 percent.

In order to be considered a good candidate for refinancing, you should be current on your existing loan and have a solid credit score. Even when factoring in credit scores and equity considerations, the number of borrowers who would be good candidates for refinancing has jumped dramatically in a short period of time.

All in all, refinancing might make financial sense, even if you purchased a home fairly recently. Millions of homeowners nationwide are currently considered to be good refinance candidates.

  1. http://www.freddiemac.com/pmms/
  2. https://www.cnbc.com/2020/03/06/10yeartreasuryyield-fallsbelow0point83percentascoronavirusrocksmarkets.html
  3. https://www.mba.org/news-research-and-resources/research-and-economics/chart-of-the-week
  4. https://www.cmegroup.com/trading/interestrates/countdown-tofomc.html
  5. https://cdn.blackknightinc.com/wp-content/uploads/2020/02/BKI_MM_Jan2020_Report.pdf

Source: Twenty Over Ten. Past performance is not indicative of future results. For informational purposes only. Not intended as legal or investment advice or a recommendation of any particular security or strategy. Information prepared from third-party sources is believed to be reliable though its accuracy is not guaranteed. Opinions expressed in this commentary reflect subjective judgments of the author based on conditions at the time of writing and are subject to change without notice. For more information about Wealthquest, including our Form ADV Part 2A Brochure, please visit https://adviserinfo.sec.gov or contact us at 513-530-9700.

Subscribe to our blog, podcast and video library.

We promise to never share your information.

Share this post with your friends

Share on facebook
Share on twitter
Share on linkedin

Invest In Your Life. We’ll Do The Rest.

Discover a new approach to wealth management where your investments, tax preparation, and estate planning services are offered by one team of fiduciary experts, all under one roof, for one simple fee. Wealthquest is a fee-only financial planning and wealth management firm focused on the integration of your life and finances. Regardless of your account size or stage of life, our firm can help.

Cincinnati

50 E-Business Way
Suite 120
Cincinnati, OH 45241

T: 513.530.9700
F: 513.530.9776
info@wqcorp.com

Mon – Thur 8AM – 5PM
Friday 8AM – 12PM
Sat – Sun Closed

MAP

Chicago

2211 York Rd
Suite 210
Oak Brook, IL 60523

T: 630.581.3580
F: 513.530.9776
info@wqcorp.com

Mon – Thur 8AM – 5PM
Friday 8AM – 12PM
Sat – Sun Closed

MAP

Scroll to Top

Building your rich life starts with a simple conversation.

Please fill out this form and a Wealthquest Advisor will be in touch with you soon.

Not a fan of forms? We totally get it.

Give us a call or shoot us an email anytime.

Cincinnati

Tel: 513.530.9700
Fax: 513.530.9776
info@wqcorp.com

Chicago

T: 630.581.3580
F: 513.530.9776
info@wqcorp.com