By: Ilana Siyance
Last week, the average 30-year fixed mortgage rate was lowered to 2.98 percent. That is the lowest rate the benchmark has been at for the last 50-years or so, as per Freddie Mac. Amid the economic instability and sweeping unemployment presented by the novel Coronavirus, however, banks have been stepping up standards and requirements for borrowers, lending with caution and opting to concentrate on refinancing existing loans.
As reported by the Real Deal, a homebuyer who gets a $200,000 mortgage at the current 2.98 percent rate would save roughly $32,000 over the lifespan of the loan, when compared to a loan attained at 3.72 percent six months earlier. “The rates are great,” said Al Fazio, a real estate attorney in New York City. “Although everyone remains concerned about what tomorrow will bring.” America’s most popular home loan is at a sub-3 percent rate, but in reality it may not translate instantly into more home purchases. “If [a home] didn’t sell at three-and-a-half percent, it might not sell much quicker at 3 percent,” Fazio said.
Current homeowners may be able to refinance their mortgage at a lower rate, but banks are also proving reluctant to allow customers to withdraw equity as part of the renegotiation, explains Fazio. “Banks are not doing cash-out refinancing,” he said. “They are wary of taking on more debt because they don’t know what the market is going to bring.”
In 2018, the banks’ lending rate for home mortgages had peaked at about 5 percent. This new record low rate should help motivate renters to buy, and existing homeowners to upgrade to a more expensive property, based on psychological factors. Also, the lower rates may mean potential homeowners can afford a larger purchase based on the mortgage savings. The residential housing market can use a pick up. In April, home sales declined 17.8 percent compared to the month before, and dropped again in May close to 10 percent, as per the National Association of Realtors. Realty brokers’ inability to show houses in person during those months, doing virtual showings instead, may have also helped dampen the market.
While the lowered mortgage rate is enticing, experts do not expect it to be a magic bullet, mostly due to the banks’ hesitance to take on new loans. “Many banks are nervous to lend in a market where employment is volatile,” said Alan Rosenbaum, CEO of mortgage lender GuardHill. “With the virus surging in different geographic areas at different times, some are very busy and some are sitting on the sidelines for now.”
