Why Mortgage Rates are at a Record Low and What That Means for Homebuyers

With the turbulent global markets, mortgage rates in the United States have hit rock bottom. This offers a small silver lining amid all the uncertainty for new homebuyers or for homeowners looking to refinance their homes: The historically record lows could ultimately save them tens of thousands in interest over the lifetime of their mortgage loans.

It’s a nuanced situation in a potentially small window of time, but if Americans are looking to get onto the property ladder, purchase an investment property or secure a lower interest rate on their mortgage, now is the time to do so.

Here are five things homeowners and potential homebuyers need to know about the current low mortgage rates.

1. Why are Mortgages Rates so Low Right Now?

In a nutshell, interest rates on fixed-rate mortgages are closely intertwined with the stock market and the how the economy is faring. When the stock market is shaky — and as of late it’s been on a scary downward spiral — investors shift their money into the U.S. Treasury bond market instead. Treasury bonds are considered a safer investment because they’re issued by the U.S. government.

Ultimately, Treasury yields (or the return an investor nets on a bond) are linked to mortgage rates. When Treasury yields go up, so do interest rates. And when yields go down, such as from bond prices going up from an influx of investment, so do interest rates.

It’s no wonder mortgage rates have plummeted — from 3.71 percent in February to 3.29 percent in March — as the 10-year Treasury yield has also dropped in that timeframe.

With lower mortgage rates, consumers are incentivized to buy houses, which is good news as it could help bolster the economy during this tumultuous time.

2. How Low have Mortgage Rates Dropped?

Mortgage rates bottomed out in early March 2020, hitting an all-time low since 1971 when Freddie Mac began its Primary Mortgage Market Survey.

“The average 30-year fixed-rate mortgage hit a record 3.29 percent this week, the lowest level in its nearly 50-year history. … Given these strong indicators in rates and sales, as well as recent increases in new construction, it’s clear the housing market continues to be a positive force for the broader economy,” said Sam Khater, Freddie Mac’s chief economist, in a statement on March 5.

The week before, marking the end of February, rates were at 3.45 percent, and one year ago at this time the 30-year fixed-rate mortgage averaged 4.41 percent.

Meanwhile, 15-year fixed-rate mortgages averaged 2.79 percent, down from 2.95 percent the week before — one year ago, they were at 3.83 percent.

3. How Much in Savings does that Equate to?

If homeowners secured a 30-year fixed-rate loan on a $300,000 home at 3.29 percent, they’d save about $159 a month compared to the rate on offer one year ago. And over the lifetime of a 30-year mortgage, that could add up to more than $57,000 in savings.

4. Will they Stay this Low?

Consumers and real estate analysts alike have watched with bated breath, wondering if rates could dip even lower. Some speculated that interest rates could decrease even to the low-to-middle 2 percent range following the downward trajectory rates have been on.

However, Freddie Mac reported on March 12 that mortgage interest rates had crept up to 3.36 percent on a 30-year fixed-rate mortgage and 2.77 percent on a 15-year fixed-rate mortgage. A year ago at that time, they sat at 4.31 and 3.76 percent, respectively.

These are still substantially low interest rates. But why did they creep up? In short, lenders have had to bring interest rates up if only to help deal with the demand they’ve encountered in the face of the historically low interest rates.

With the record lows have come a record number of applications for new mortgage loans and refinancing. The Mortgage Bankers Association reported March 11 that mortgage applications skyrocketed by 55.4 percent from the previous week. Refinances made up the bulk of the applications, at 76.5 percent, up from 66.2 percent in the prior week. And as of February, mortgage applications for new homes had increased 25.9 percent compared to a year ago.

5. What should Potential Homebuyers or Current Homeowners do?

Real estate experts suggest the current low rates are worth capitalizing on. While they may dip lower, there’s a risk to waiting too. Mortgage rates could shoot up overnight if, for example, scientists make speedy work with developing a vaccine that could point to the end of the outbreak. On the other hand, interest rates could further fluctuate if the economy worsens.

Given the increase in mortgage applications, prospective buyers should act quickly to get in line to lock in the low rate. Borrowers should anticipate waiting about eight to 10 days longer than average to close on their loans. This could result in up to 55 days or more to close a loan.

If you decide to apply for a new loan or refinancing, it’s important to get your ducks in a row first. Gather your paperwork and check that your credit score is at its best to secure the low rate. In some instances, lenders are providing 90-day rate locks to ensure their clients get in on the lower rate.

The good news is rates should, for the most part, stay low.

“As lenders handle the wave in applications and manage capacity, mortgage rates will likely stabilize but remain low for now,” said Joel Kan, associate vice president of Economic and Industry Forecasting for the Mortgage Bankers Association. “This in turn will support borrowers looking to refinance or purchase a home this spring.”