How Low Can Mortgage Rates Go?

July 27, 2020
Small house figurine next to a large red decreasing line graph
By adragan

Just a few weeks ago, mortgage rates broke records by dropping just under 3%. Now at 2.87%, the average rate for the 30-year fixed is continuing to decrease, according to CNBC. The COO at Mortgage News Daily says some homebuyers are even finding average rates of 2.625%. Although the rates are exciting for most, many lenders and investors in mortgages are nervous due to the uncertainty that comes with the pandemic. If more people lose their jobs, stop making their payments, or if the country goes on lockdown again, investors fear how the housing market will be impacted.

Mortgage rates are really based on what investors will pay for mortgage-backed bonds. Investors need some kind of yield, or they won’t buy those bonds. That is why rates can only go so low. It’s a question of whether the bonds even exist and what the demand would be for those incredibly low-rate bonds.


“For a variety of reasons, it doesn’t make any sense for the mortgage market to begin to rely on a new, lower-rate mortgage bond unless it’s sure that bond will remain relevant,” said Graham. “We only recently saw the introduction of an all-new mortgage bond coupon in April. It technically allows for rates to go down to 2.25% on the 30-year fixed. That’s as low as rates could go without a serious double-dip recession to drive a second wave of gains in the bond market — totally possible, but not yet a guarantee.” 

Read More

Comments

Related Categories

expand_less