Historically Low Interest Rates Spur a Rush of Homeowner Borrowing
The confluence of two newsworthy trends is driving business for mortgage lenders: historically low interest rates and consumer fear that those rates could rise.
Interest rates have dropped steadily since 2008, when the U.S. Federal Reserve slashed rates to boost a swooning housing market and staggering economy. Today, the economy has improved, but rates remain at record lows — and that’s attracting the attention of homeowners looking to refinance, as well as potential homebuyers. Freddie Mac’s latest Primary Mortgage Market Survey® shows average fixed mortgage rates below 4%. Here are some highlights:
- The 30-year fixed-rate mortgage (FRM) averaged 3.69% with an average 0.6 point for the week ending March 26, 2015, down from 3.78% the week before. During the same week in 2014, the 30-year FRM averaged 4.40%.
- The 15-year FRM averaged 2.97% with an average 0.6 point, down from 3.06% the week before and 3.42% a year ago.
- The five-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) averaged 2.92% with an average 0.4 point, down from 2.97% the week before and 3.10% a year ago.
Meanwhile, the possibility that the Federal Reserve will raise interest rates as the economy continues to improve is pushing prospective borrowers off the fence. “People thinking of buying a house should act quickly to lock in today’s low rates,” warned Dean Croushore, an economics professor at the University of Richmond and former Philadelphia Fed economist, in an interview with CNN in March 2015.
Craig Crabtree, Senior Vice President and General Manager of Equifax Mortgage Services, said today’s low interest rates make buying a home more affordable for increasingly optimistic consumers. That’s good news for both borrowers and mortgage lenders as we head into the spring home-buying season.
“Historically low rates are a key reason that new-home sales shot up 7.8% in February — the strongest performance in seven years — despite severe winter weather,” Crabtree said. “In addition, media reports have awakened consumers to the fact that these low rates won’t be around forever. The two trends are coming together, creating a rush of borrowing for new home purchases and refinances.”
Lenders can use outside resources to help manage the business blitz. By tapping third-party providers to obtain tri-merge credit reports, verify employment and income data directly from the source, and monitor undisclosed debt, lenders can process loan applications more accurately and in less time, Crabtree said.
He also noted that the latest news indicates lenders should prepare for a sustained stream of new business. “In late March, we were hearing that the Feds would likely take a gradual approach to interest rate increases,” said Crabtree. “If rates don’t take a sudden upward turn, consumers will remain interested in home-related loans.”