30-year mortgages at record low

A rate below 3 percent is a boon for homebuyers but hints at recession

The average rate for a 30-year-fixed mortgage fell below 3 percent last week for the first time, according to the governmentsponsored mortgage-finance company Freddie Mac.

The falling rates are making homes more affordable for buyers and spurring a wave of refinancing as homeowners seek to lower monthly payments. Freddie Mac estimates that at current rates, most homeowners with mortgages could save money by refinancing — a financial boon for potentially tens of millions during a recession.

“That’s a big deal,” said Sam Khater, Freddie Mac’s chief economist.

Freddie Mac reported the rate for a 30-year loan averaged at 2.98 percent for the week ending July 16, down from 3.81 percent a year earlier. That means a new homeowner buying an average-priced home, which in the Houston area is about $320,000, with 20 percent down would save $117 a month.

Homeowners, who have mortgages with higher rates and paid balances down over time, could save even more.

Chad Helmcamp, president of BWC Lending in Memorial City, said a client of his lowered his interest rate from 4.25 percent to 2.25 percent on a 30-year fixedrate loan, saving him $419 a month.

Other clients, he said, are using the savings to pay off higher-interest debt, such as credit cards. About one-third are refinancing into shorter-term loans with raising monthly payments, meaning they’ll pay off their homes more quickly and potentially save thousands of dollars in interest.

The average rate on 15-year mortgage, a popular loan for refinancing, was 2.48 percent, according to Freddie Mac.

For Brandi Peasley, who bought a home with her husband in May 2019, the drop in mortgage rates allowed her family to secure a 2.75 percent rate on a 30-year mortgage and save more than $350 a month. They plan to use the savings to pay off their mortgage faster.

The savings also give her family increased financial security, she added.

“If something happens to one

of our jobs, that gives us a little more wiggle room,” she said. “We don’t have to pay the extra money into our mortgage. So that gives us peace of mind.”

Applications soaring

Refinancing applications, meanwhile, have soared, more than doubling last week from a year earlier, the Mortgage Bankers Association reported Wednesday.

Helmcamp said his loans are on track to quadruple to more than 20 this week from his usual five. Todd Jones, president of Paramount Bank Direct, said his applications have increased by five times over the last month.

“I tell them,” Jones said, “‘Hey. Congratulations. I don’t know the last time you bought a stock at the absolute lowest price. But you’re getting a mortgage at the absolute lowest price in history.’”

While low mortgage rates are good for homebuyers and owners, they signal that investors are concerned about the future of the economy. When investors become nervous, they seek safer investments and pour money into government bonds and mortgage debt — much of it backed by Freddie Mac and its sister company Fannie Mae.

Investors are so hungry for security that they are willing to accept lower yields, driving down the interest paid on bonds and mortgages. Actions by the Federal Reserve to support the economy, including cutting short-term rates to near zero and buying government- and mortgagebacked bonds, are also driving down mortgage rates.

“We talk about stimulus by the Fed,” said Khater, the Freddie Mac economist. “We’re essentially driving down the carrying costs of a mortgage.”

60-day lock

The flood of applications, however, has slowed processing, leading to longer waits to close the loans. While it’s usually possible to close a new mortgage within 30 days, now processing times have extended beyond a month.

Jones recommended finding a lender who could guarantee at least a 60-day lock on the rates they quote.

“You would think you should be able to close a mortgage within 60 days,” he said. “But everyone has a compelling reason right now to refinance.”

Khater said he believes rates will continue to drift down in the short term and will recover very modestly with the economy.

“Interest rates have been sliding for 40 years,” he said. “We’re saying this can’t keep going down forever, right? But the runup in rates from the late ’60s to early ’80s was really a unique event. Prior to that, rates were always low.”