For proof that the coronavirus pandemic is wreaking havoc on economic as well as public health institutions, look no further than the mortgage market: Although mortgage rates have been bouncing around at record or near-record low levels for a number of weeks now, the newest data shows that the the benchmark 30-year fixed mortgage rate shot up by roughly 30 basis points (that’s 0.3 of a percentage point) in the space of a week.
“It’s the most significant jump in history,” says Thomas Forker, senior vice president at Bryn Mawr Trust.
The average rate for a 30-year mortgage hit a low of 3.29% in the first week of March. The current figure — 3.65% — is still really, really low by any calculation. But is it still worth it to refinance?
Maybe. But it depends, experts say.
Is Now the Right Time to Refinance Your Mortgage?First, some background: The sudden spike is attributable to two factors. One is simply more demand. With rates this low, homeowners thinking about refinancing have a lot of company.
“The Federal Reserve has cut rates twice in March. But spreads have widened between Federal Funds rate and 30-year fixed mortgage rates mostly because lenders are adjusting to higher volume, for refinancing as well as for new mortgage originations,” says Ken Leon, director of equity research at research firm CFRA.
Although it might be funny to think about “surge pricing” in the mortgage market, the relationship between supply and demand in the ride-share business isn’t fundamentally all that different. “Lenders were getting so busy they just couldn’t take any more business,” says Forker.
The other, overriding factor is the sheer disarray into which the COVID-19 pandemic has thrown nearly all of the world’s markets. The unprecedented uncertainty has thrown off the usual equation bond traders rely on to assess risk — and bond market activity is the foundation on which the mortgage market is built.
In the face of such extreme volatility, Forker suggests that homeowners who haven’t already locked in a rate might be better off to be patient — for a bit, at least. “The interest rates have swung so far out, it’s more of a wait and see,” he says. “Stand down and keep your eye on the market.”
The Federal Reserve has been pouring resources into ensuring that markets remain liquid — that is, making sure that volatility doesn’t artificially distort the supply-and-demand balance.
“These rates should come back if markets return to normal,” Forker says — and they will, he asserts. Mortgages are important enough that the central bank will make sure of that. “We’ve been at or better than where we are now for the better of the last two years. So I would still recommend letting this settle down.”
But depending on the rate you’re currently paying, Leon argues that waiting for the mortgage market to give back a few fractions of a percentage point might not make economic sense. “Given that the Federal Reserve has essentially shot its bazooka, you would absolutely want to look at refinancing, especially if you’re going to save significantly,” he says.
“Rates are still much lower than 15 months ago when we were at 5%,” he points out. “For the next three to six months, it’s going to be a great time to refinance.”