Many investors have shunned risky assets and fled to U.S. 10-year treasury notes since Brexit happened two weeks ago. The price of U.S. 10-year treasury notes soared sharply as demand increased while the U.S. 10-year Treasury yields, the benchmark for mortgage rates, dropped sharply.
The average mortgage rate as of June 30 was 3.48% for 30-year fixed rate mortgage, decreasing from 3.56% in the prior week and reaching its three-year low, according to the Primary Mortgage Market Survey published by Freddie Mac. But mortgage rates were already hovering near its three-year low before July 23. The already low mortgage rate may limit the possibility for a full-scale refinance boom, but it’s still a silver lining for U.S. banks who have suffered from share price drop since the Brexit vote.
Mortgage borrowers can benefit from mortgage refinancing if they refinance at rates that are at least 50 basis points lower than their current mortgage rate, considering refinancing fees banks will charge.
Michael Fratantoni, chief economist at the Mortgage Bankers Association, said: “With those lower mortgage rates, we do expect a higher amount of refinance activity and a little bit more purchase activity.” “The number of potential refinance candidates grows tremendously with every 12.5-basis-point drop in interest rates,” said Brian Koss, executive vice president of Mortgage Network. Not only having an impact on refinancing, low mortgage rates will enable consumers to buy a house.
While low mortgage rate benefits home owners and loan originators, investors in mortgage backed securities may be involved in prepayment risks, forced to reinvest in lower rates.