US mortgage rates dips to new lows

The median interest rate imposed on fixed rate mortgages of 30 years in the United States dipped to 3.36 percent on July 29, a record low. The only time when mortgages went down to such levels was in December 2012. The trend is being driven by a yield decline on the 10 year US Treasury bonds. These bonds provide the function of an important benchmark for the mortgages.

Treasury yields

The US Treasury yield for 10 year presently stands at about 1.49 percent. It is a decline from the 2.27 percent at the start of the year. Global investors now seek safe investments in the middle of economic uncertainty. The REIT stocks have also been pushed up by low treasury yields.

Short term rates could be upped by the Federal Reserve in September. However, in the opinion of Alex Goldfarb, a Sandler O’Neill analyst, the impact of such an action on mortgage and long term treasury rates will in all probability be limited. The market set the long term rates and the Federal Reserve has not made much impact on the market.

Mortgage applications

A report published by Black Knight Financial Services stated that this decrease in the interest rates means about 1.3 million borrowers could now benefit from mortgage refinance, bringing total to about 8.7 million. This makes it the highest since 2012.

The newly eligible borrowers enjoy rates equal or above 4.25 percent. This rate drop after BREXIT was just 15 basis points on 30 year duration fixed mortgage. According to Ben Graboske, the BREXIT has generated an almost 50 percent rise in number of borrowers. These borrowers have the new found incentive of refinancing. This could create a much more pronounced impact when it comes to the refinance of applications and also originations when the borrowers rush in to take advantage.

Data provided by Mortgage Bankers Association showed that refinance mortgage applications have increased by 100 percent during the July weeks when contrasted with the same period a year before. These remain on the higher side as the rates have not varied from recent lows. Lacklustre GDP number have kept the downward pressure on the interest rates. It means that there will be an another surge in the refinances.

Bryab Sullivan of Loan-Depot, a large non-bank lender, admitted that bankers are working extremely hard to manage the turn times and provide an excellent customer experience- but it is hard to do that now.

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