According to Realtor.com, mortgage rates, like the stock market, have been on a wild ride in recent weeks. They dropped to record lows earlier this month in response to the spread of COVID-19—and then shot right back up again. And it looks like it’s about to get even bumpier after the Federal Reserve slashed its own interest rates over the weekend in a bid to stave off a recession.
That means mortgage interest rates are likely to go back down again—a boon for homeowners and homeowners hoping to refinance their existing loans to save on their monthly housing bills. But they’re not expected to plummet to the Fed’s new short-term rates of between 0% and 0.25%. Instead, mortgage rates are likely to drop from about 4% on Friday to the mid- to low-3% range in the coming weeks, mortgage experts predict.
These rates are for 30-year fixed-rate loans. Rates are lower for short-term and jumbo mortgages.
Rates hit a low of 3.29% on March 5, according to Freddie Mac. That’s as low as they’ve been since Freddie Mac began tracking mortgage interest rates in 1971—nearly 50 years ago.
But then mortgage rates did something surprising: They rose. Despite the coronavirus-ravaged stock market and growing fears of a recession, they ticked up to 3.36% as of Thursday, according to Freddie Mac. Mortgage News Daily (which is not affiliated with Freddie Mac and measures rates differently) reported they had risen to 4% by Friday on 30-year fixed-rate loans.
That’s because homeowners rushed in, seeking to refinance their existing mortgages to save some serious dough. Many have been able to shave hundreds of dollars off their monthly mortgage payments and tens of thousands of dollars off the life of their 30-year loans. Many overwhelmed mortgage lenders responded by upping rates to keep the flood of refinances at bay.
All of those refinances also created something of a glut in the secondary mortgage market, which also contributed to higher mortgage interest rates. Lenders typically don’t like to keep the home loans they make on their books, so they sell these loans, which are bundled into a collection of mortgage-backed securities, to investors in the secondary market. This way banks and other financial institutions have more cash on hand to make additional loans.
The influx of refinances in the secondary market meant lower prices for the securities. And since mortgage bonds and mortgage rates move in opposite directions, rates went up.