The mortgage rate is showing a declining trend in recent times. The average rate on the 30-year fixed rate mortgage touched record low. In fact, the mortgage rate reached the lowest level since past 6 decades. On July 26, Freddie Mac commented that 30-year fixed rate mortgage declined to 3.49%. In the immediate previous week, the same rate was 3.53%. This is the lowest since the mortgage rate is being recorded since 1950s. This has surely opened up windows of opportunities for refinancing.
Borrowers who are planning to convert their 30-year mortgage loan to a 15-year mortgage are also finding it very enticing. On the same day, on an average, the 15-year mortgage loan rate declined to 2.80%. In the immediate previous week, the rate on the 15-year mortgage loan was 2.83%.
The spate of record lows in the mortgage rate can be attributed to the housing crisis that the country had witnessed in 2008. Widespread approval of mortgage loans without judging the repayment capacity of the borrowers was the root cause behind the housing crisis. In the aftermath of the crisis, the housing market was seriously hurt and home prices started to decline appreciably. In order to give a boost to the ailing housing market, mortgage rates were kept at low levels. The aim was to attract home buyers to buy homes.
In fact, low mortgage rates resulted into housing discovery this year. Though it has been very modest, but some signs of discovery in the mortgage market have been observed. Though the sales of new and previously occupied homes declined June in comparison to that of May but were higher than that of June of previous year. Housing prices have started to gain some kind of stability. In many large markets, housing prices have started to show an upward trend. Builders are now also gradually gaining in confidence and putting in more houses for sales purpose. The National Association of Realtors, in a report, has revealed that in the month of June, lesser of Americans signed contract to buy homes in comparison to that of the previous month. But, that figure was up than that of the figure of the same month of the previous year. According to the National Association of Realtors, the group’s index of sales agreements was 99.3 in June. This index is 9.5% more than the index of the same month of the previous year.
Again, importantly low mortgage rate can give a boost to refinancing activities. Refinancing at low rate implies that home buyers have to pay less interest rate as well as less monthly mortgage payment amount. In other words, this actually helps the borrowers to save some money on a regular basis. This is indeed good for the overall economy. The borrowers can use the saving for various purposes such as renovating their houses, for buying appliances and furniture. This actually spurs demand in the economy and pushes up the growth rate in the economy.
However, home sales in the country are still very low. It requires a lot of bold steps and measures to reinvigorate the housing market in the country.