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Will Mortgage Rates Plunge Even Lower?

Doug Whiteman
Will Mortgage Rates Plunge Even Lower?

If you've been keeping an eye on mortgage rates, you know that they've slid — in your area and all around the U.S. — to the lowest levels in at least a few years. In fact, they're not too far from a 50-year low, according to mortgage company Freddie Mac.

And maybe you've heard that the savings can be substantial. A buyer taking out a $200,000, 30-year fixed-rate mortgage at today's average rate of 3.45% will pay $100 per month less than someone who took out a similar loan a year ago, when rates were averaging 4.35%.

As for homeowners, the analytics firm Black Knight says 11.1 million of them can save an average $268 a month by refinancing their mortgages at today's low rates.

OK, so let's assume you have a good understanding of what's going on with rates. If you're a homeowner or a potential homebuyer, here's something you don't know and are probably eager to find out: Will rates get even better?

How low will mortgage rates go?

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Rates are down because of coronavirus fears.

The rates on mortgages are down because investors worried about the spreading coronavirus have been piling into Treasury bonds as a safer investment than stocks during uncertain times.

Demand for bonds causes their prices to rise and their yields (interest rates) to drop. Mortgage rates usually follow the ups and downs of the yield on 10-year Treasury notes.

At an average rate of 3.45%, America's most popular home loan — the 30-year fixed-rate mortgage — isn't too far from the depths reached in November 2012. At that time, the average rate was just 3.31%, the lowest ever seen in the weekly Freddie Mac survey that got its start in 1971.

Some experts say today's rates may be as good as it gets.

"At no time in modern economic memory have mortgage rates been able to move significantly or aggressively lower than they are right now," says Matthew Graham, chief operating officer of the blog Mortgage News Daily.

And here's another reason rates may not fall much further: Lenders don't want to go lower.

"Generally, lenders tend not to keep up with volatile movement in Treasuries like those seen in the past few days, particularly with rates as low as they currently are, opting instead to quote conservative rates and wait until the storm passes," writes Matthew Speakman, an economist with Zillow.

What do you do?

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It would be a mistake to sit and wait for rates to go lower.

The 10-year Treasury yield has been hitting new all-time lows, but mortgage rates haven't fallen quite so sharply, at least not yet.

The Federal Reserve could help to send rates somewhat lower. Fed Chairman Jerome Powell has issued a statement suggesting the central bank is poised to cut interest rates to protect the economy from the "evolving risks" associated with the coronavirus.

Forecasters are already betting that central bank policymakers will cut rates at their next two meetings, in mid-March and late April. The Fed's moves don't have a direct impact on mortgage rates but can influence the path that they take.

Here's the bottom line, if you're in the market for a home or a refinance: Nobody really knows what mortgage rates will do in the weeks and months ahead, but analysts say one thing they do know for sure is that it's not a good idea to sit around and wait for the perfect mortgage rate, particularly when rates are already so remarkably low.

Mortgage rates can go higher just as easily as they can go lower. Zillow's Speakman warns in his blog that rates could take off once the coronavirus narrative starts to change.

"If the tone of news regarding the outbreak should suddenly shift in a positive direction, a strong bump in mortgage rates would almost certainly follow," he says.

So, if you see an attractive rate that works for you, be sure to lock it before it gets away. Because you just never know.