As we head into August and the early fall, surveys have reported that 30-year mortgage rates have dropped below four percent since last week. Right now they are showing to be right at 3.98%. It is the first time in 8 weeks that these mortgage rates have fallen below 4 percent, and which are expected to open even lower next Monday.
Conventional rates are sitting at about 3.875% for buyers willing to pay points at closing, with FHA and VA mortgage rates are as much as 3/8ths lower. With mortgage rates down today, homebuyers are able to afford close to 10% “more home” as compared to the start of last year. It is also an excellent time to be an owner of a home. With mortgage rates down, it is putting a lot of owners back into the money for refinance. To be in the money, your mortgage rate must be more than 150 basis points (1.5%) above today’s rates, and your loan must have more than 10 years remaining with a balance larger than $50,000.
The latest refinance report from the FHFA shows refinance volume up 80% as compared to one year ago at this time. FHA and VA refinance volume is also on the rise. We have seen VA loan interest rates beat conventional loan rates by a quarter-percentage for 12 straight months now. Even if you have already refinanced or recently purchased a home, take a look at today’s rates and observe that there is money out there to be saved where closing cost do not have to be too high.
Discount points are most of the time tax-deductible and can be paid with cash or can be added to your loan size. Today’s 15-year mortgage rates are low; they can be found as low as 3.17% with 0.6 discount points due at closing.
When we find mortgage rates dropping below the psychologically-important 4 percent barrier, you can be assured that it will drive a purchasing and refinancing push. Loans now cost $476 monthly for every $100,000 borrowed. It should be noted that rates do not always stay the same, and are not guaranteed to even last until tomorrow. This month alone rates can jolt above the 4% barrier, or fall to about 3.5% as well.
You may wonder where these rates have been driven from; it can be accounted to a few moves in our economy of late.
The first factor is that more jobs have been available in the economy. Last month alone, it was shown that 223,000 jobs were added to the economy. Despite 11.5 million jobs added since 2010, Wall Street is still not convinced, with labor markets and wage pressures not rising in a manner that would suggest full recovery of the economy. As the job market expands, the Fed is expected to raise the Fed Funds Rate to slow the effects of inflation. Economists are expecting an additional 212,000 jobs to be added to the economy in July with the report being released Friday, August 7, 2015.
Another reason that interest rates have been moving is due to a drop in inflation rates. Inflation is the enemy of low mortgage rates. This is because inflation devalues the U.S. dollar, which, in turn, devalues U.S. mortgage bonds. During periods of rising inflation, mortgage rates tend to rise too. Recent data has shown that the annual inflation rate is just above one percent. The Fed would like inflation rates to be just below if not at 2%, and are optimistic that they will return to this more stable area in the coming months. This is the same thought as the central banker has expressed, but we have also been hearing these thoughts for the better part of the year.
The last factor in interest rates lately is due to a strong U.S. dollar moving mortgage rates down. Weakness in non-U.S. economies will also affect this month’s mortgage rates. This meaning, as global economic weaken, U.S. mortgage rates improve. This is the result of an investing pattern known as a flight-to-quality. Mortgage bonds are among the safest investment classes in the world. Therefore, 30-year mortgage rates tend to improve when war is imminent; or, when large global economies face an uncertain future. Investment in the U.S. dollar has been strong, too, which helps mortgage interest rates to drop. This is because mortgage rates are based on the price of mortgage-backed securities (MBS), which are priced in U.S. dollars. As the value of the dollar rises, so does the inherent value of owning MBS. This drives demand for mortgage bonds higher, which leads prices up. When bond prices rise, mortgage rates drop. This is another reason mortgage rates have moved lower this year so far — there has been a fair amount of global uncertainty. And, with Greece still wrestling with the Eurozone and its creditors; and China’s stock market under pressure, mortgage-backed bonds may get a boost.
Mortgage rates have dropped below 4 percent. Homebuyers have excellent purchasing power at today’s rates; and refinancing households can save more cash with a refinance.
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