Bank Failures Lead to Lower Mortgage Rates

Elle Aon/Shutterstock

The first good news for potential homebuyers has come out recently with a drop in mortgage rates. Rates had been at a high of over 7 percent, but due to the news of two bank failures, they dropped toward a 6 percent level.

The collapse of both Silicon Valley Bank and the Signature Bank seems to have shaken up the market. As a result, the banks have lowered the 30-year mortgage rates to 6.68 percent. It is a significant drop in mortgage rates since the previous Thursday, when they were 7 percent. NerdWallet says that the average on March 15 for a 15-year fixed mortgage is 5.79 percent, which is lower than just one week ago.

Mortgage Rates and Treasury Bonds

Average mortgage rates are tied to the 10-year Treasury notes. When the yields of Treasury bonds drop, it also lowers the value of all mortgage rates. The fall of the two banks decreased the value of Treasury bonds, TheRealDeal says, which caused the sudden drop in mortgage rates.

New Mortgage Applications Have Jumped Much Higher

Homebuyers have begun to move to take advantage of the lower interest rates, resulting in a rise in new contracts for home sales. Some homeowners are taking advantage of the lower interest rates and are refinancing their home loans for a better deal.

Mortgage rates are still nowhere near what they were in 2022. Finance.Yahoo reports that the interest rates now are still 49 percent higher than they were one year ago.

A basis point is equal to one-hundredth of 1 percent. The mortgage market often is measured by basis points and increases or decreases accordingly. According to Bankrate, the largest drop by loan type was the 30-year fixed mortgage, which decreased by 15 basis points. Note that different websites use different measuring sticks or times of day to determine daily mortgage rates, which results in slightly varying rates.

The Federal Reserve and Interest Rates

Since no one knows how long the interest rates will stay lower, it may be a good idea to try to lock in a new mortgage rate now. The Fed is still talking about raising rates, but may not do it immediately. The Fed has another meeting, on March 21–22, to discuss whether or not to raise rates.

The Fed’s goal is to attempt to bring inflation under control, which has stubbornly resisted so far. NerdWallet reported that policymakers aim to reduce it to a mere 2 percent, reiterated by Fed chair Jerome Powell in front of a congressional panel on March 7 and 8. Officials intend to do this by forcing businesses and consumers to borrow but spend less.

Getting a lower interest rate always means you will pay less over the life of a mortgage. The difference is that you will save thousands of dollars and possibly even tens of thousands of dollars. When seeking a lower interest rate, avoid accepting the first deal offered. Instead, get offers from several lenders and choose the best. This will take some work to fill out the paperwork, but remember that you could save thousands more by taking the better offer.

The Shift Toward Non-Conforming Loans

Homebuyers have recently moved toward non-conforming loans, HousingWire says, which include jumbo loans and adjustable rate mortgages (ARMs). The increase in these types of locked loans has risen since February by about 11 percent average (still down about 40 percent from last year), and the value of the loan amounts has also increased.

Yahoo says that the Department of Housing and Urban Development states that the national income average for 2022 was $90,000, and the average home sold for $359,000. If the buyer had a 20-percent down payment and a 6.66 percent mortgage rate, their monthly payments would be $1,845—or 25 percent of that family’s income. The year before, with lower interest rates and home prices, the cost of a home only required 19 percent of the family’s income.

Adjustable rate mortgages can be risky unless you intend to refinance before they readjust—and hope that a better rate is available when you do. They start with a period of low rates and then readjust to the current market rate after several years. If the market rates are lower, it could be a good deal; but if the new rates are considerably higher, it could make your new mortgage payments unaffordable.

Jumbo loans are larger than what Freddie Mac and Fannie Mae will normally guarantee. Because of this, the lender faces a higher risk if the borrower fails to make the payments. As a result, the requirements for the loan are more stringent, and the interest rates are higher than for other mortgages.

Mortgage Rates and Selling a Home

If you are trying to sell your home, you also want to watch interest rates. If rates do go higher soon, there will be fewer buyers looking to buy because it will be harder to get a home loan, and fewer people will be interested in buying. Potential buyers may also be watching mortgage rates, hoping they will go even lower.

NationalMortgageNews says that sellers, more than ever, are now adding various concessions to buyers in an attempt to speed sales. They report that as many as 45.5 percent of sellers made offers that gave something back to the buyer without lowering the cost.

There may only be a narrow window to apply for a new mortgage and lock in rates before the Fed raises them again. If you are thinking of buying a home or refinancing, now may be the best time to get a better deal on home mortgage rates.

The Epoch Times Copyright © 2022 The views and opinions expressed are those of the authors. They are meant for general informational purposes only and should not be construed or interpreted as a recommendation or solicitation. The Epoch Times does not provide investment, tax, legal, financial planning, estate planning, or any other personal finance advice. The Epoch Times holds no liability for the accuracy or timeliness of the information provided.