Thirty-Year Mortgage Rates Dropping to Record Lows
According to a survey performed by
mortgage originator
Freddie Mac, after months on the up swing, 30-year fixed mortgage rates fell to 4.32% this week, the lowest they have been since last November when they were threatening all-time lows.
If trends continue, many experts believe the rates could drop below 4% -- well below last November's 4.17% -- which would be the lowest rate ever recorded on 30-year mortgages.
Mortgage rates are directly correlated to treasury yields, though their ebbs and flows are not synchronized. This explains why mortgage loan rates have yet to feel the full effects of the drop of 10-year treasury bonds, which were as low as 2.24% last week.
Typically, 30-year mortgage rates are around 1.6 to 1.7 percentage points higher than the 10-year treasury yield. Therefore, a bond rate as low as 2.24% would place the 30-year mortgage rate around 3.84% to 3.94%.
Unfortunately for homeowners, and prospective buyers, tapping into these rates is difficult.
Due in part to a sluggish and uncertain economy, home sales are still struggling. Many people who would consider a new home are using extra cash to pay down debt or rebuild lost savings.
Homeowners who suffered through the recession, and would benefit greatly from the opportunity to refinance their home mortgage into the new super low rates, are hampered by bad credit and tightened lending practices.
So that leaves the wealthy and well off as the prime candidates to benefit - and the savings could be substantial. Most mortgages are locked in at a rate of around 5%. On a $200,000, 30-year mortgage loan, a rate of 4.24% would mean a savings of over $30,000 in interest.
Another party benefiting from the situation are investors purchasing stock in treasury bonds. The Federal Reserve has announced their decision to keep treasury yield interest rates stable through mid 2013. While investors buying in are surely excited, those already in the market will now see less gains if they chose to stay pat.
While this decision might cause mortgage rates to remain low as well, investors may push for higher mortgage rates to off-set their sluggish returns.
By: Javi Calderon
