Coronavirus Likely To Cause Further Decline In Mortgage Rates
26 Feb 2020
Approx Reading time: 3 minutes
- Declining 10-year Treasury yield is driving down mortgage rates.
- Investors are preferring to invest in safe-haven bonds as a cautionary step to deal with the ongoing coronavirus spread.
- Experts believe the decline in mortgage rates will sustain for a few weeks, however, rates will jump back up again eventually.
According to experts, the mortgage market should expect another decline
in mortgage rates due to increased fears pertaining to the coronavirus outbreak which is pushing investment into safe havens and driving 10-year Treasury yields to historic lows.
On Monday, the 10-year Treasury yield stood at 1.3856%, which is the lowest reported rate since the month of July 2016. A record low was reported for the 30-year Treasury yield, at 1.8321%, on the same day.
The COVID-19 outbreak has so far infected over 79,400 people and claimed around 2,600 lives, according to figures reported by the World Health Organization. The global economy has responded to the outbreak, and markets everywhere have slowed down due to disruptions throughout the value chain. Stock markets have also taken a hit.
This slowdown is also impacting interest rates, and investors are now switching towards bonds. This shift is also contributing to keeping mortgage rates low. According to experts, the 30-year Treasury bond yield is falling because of increased concerns over the ongoing coronavirus spread, however, this does not impact mortgage rates. The yield that does impact mortgage rates pertains to the 10-year Treasury bond, which is also declining.
Mortgage rates change whenever there is a shift in perception about economic growth or the quality of the financial markets, to name a couple. Both of these factors have been adversely impacted by the ongoing virus spread, and experts believe that as long as the virus keeps the levels of uncertainty at a high, mortgage rates are unlikely to increase.
For those looking to borrow, mortgage rates are likely to tumble in the following weeks due to a falling yield of the 10-year bond. Those who are already mortgage borrowers, a further decline could spike interest in refinancing. Naturally, this would be a tsunami of applications to flood mortgage lenders, causing a slowdown in the mortgage process.
Hence, experts, have advised borrowers to keep all necessary documentation ready to speed up the process as much as possible, including income and tax information, bank statements, and any other required documentation.
At this time, borrowers who are comfortable making higher payments could receive a 15-year mortgage fixed-rate of around 3.08%, while a 30-year fixed-rate mortgage loan stands at 3.75%. Those with adjustable-rate mortgages (ARMs) would automatically receive the benefits of declining rates.
However, these rates are unlikely to stay low for long, especially once the virus is contained, which could drive rates up. Experts have cautioned borrowers to avoid relying too much on the rates staying low when making long-term financial decisions. For example, ARM borrowers are advised to convert their mortgage into a fixed-rate mortgage as long as rates are below 4% before rates jump back up.
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