Freddie Mac reports that the average rate on a 30-year fixed-rate mortgage at the end of last week was 3.65 percent -- still very low but 29 basis points higher than the previous week. But a year ago, the prevailing mortgage rate was much higher -- 4.28 percent.
The rate rose even though the Federal Reserve slashed its federal funds rate to 0 percent. The yield on the 10-year Treasury bond -- which directly influences mortgage rates -- also fell back below 1 percent.
Freddie Mac says the upward movement in mortgage rates is due to supply and demand. It says lenders increased rates to “help manage skyrocketing refinance demand.”
Help from lenders
With the cononavirus (COVID-19) triggering a wave of layoffs in the last two weeks, lenders are reaching out to their customers who are wondering how they're going to pay their mortgage. Ally Bank, Bank of America, Quicken Loans, TD Bank, and Wells Fargo are among the lenders that have offered assistance to homeowners.
The assistance ranges from bank to bank, so homeowners will need to reach out to their particular lender to find available options. Ally Bank will defer mortgage payments for up to 120 days for homeowners suffering a virus-related loss of income. Bank of America will consider forbearance on a case by case basis, but it has suspended all foreclosure sales, evictions and repossessions.
Keep in mind that a mortgage forbearance is simply an agreement between the borrower and the lender to alter or suspend payments for a temporary period due to hardship. Eventually, the money has to be repaid. If you need help, check with your bank’s customer service department.
Rush to refinance
Meanwhile, mortgage lenders have remained extremely busy. Homeowners have rushed to refinance their mortgages to lower monthly payments, and people buying homes also contributed heavily to the spike in loan applications. The Mortgage Bankers Association (MBA) reports that purchase applications surged 25.9 percent in February from year-ago levels, a trend that is not expected to last.
"The ongoing situation around the coronavirus led to further stress in the financial markets late last week, with unprecedented volatility and widening spreads,” said Joel Kan, MBA's associate vice president of Economic and Industry Forecasting. “This drove mortgage rates back up to their highest levels since mid-February and led to a 10 percent decrease in refinance applications. However, refinance activity remains very high.”
In fact, MBA’s Market Composite Index, a means of measuring mortgage demand, remains at its highest level since October 2012, and Kan says refinancing accounts for 75 percent of those applications.
"The Federal Reserve's rate cut and other monetary policy measures to help the economy should help to bring down mortgage rates in the coming weeks, spurring more refinancing,” he said. “Amidst these challenging times, the savings that households can gain from refinancing will help bolster their own financial circumstances and support the broader economy."
Among the things to consider before refinancing is your present interest rate and how long you expect to remain in the house before selling it. Here’s where to look for the best mortgage lenders and refinancing companies.