The summer of 2016 is shaping up to be one of the best seasons for home loans in years. The average interest rate on a 30-year fixed mortgage is at 3.52 percent as of July 7. That's significantly lower than what could be found just a year ago, and among the lowest rates seen since 2013. In a survey of economists, more than half said they expected average rates to continue falling in the days and weeks ahead.
For homeowners currently paying a mortgage, this is terrific news. For prospective borrowers, it may be even better. Even though many expect interest rates to remain at historically low levels for a while, it's impossible to know for sure. Therefore, frugal mortgage borrowers should be aware that time is of the essence.
What's Causing Low Rates?
Anyone paying attention to the news in the first days of July has probably become very familiar with a recently made-up word: Brexit. The U.K.'s unprecedented decision to leave the European Union sent shockwaves throughout the global economy when the results of the vote were announced June 24. Investors and financial institutions the world over reacted negatively to the vote, not just because it was unexpected, but also from sheer uncertainty. No country has ever left the EU since it was created in 1971, and as one of the biggest players in international finance, the implications of Great Britain's move are still not fully known.
After #Brexit, mortgage rates in the U.S. have approached record lows https://t.co/9y3FagAB0H pic.twitter.com/9BNE6EkWO8
— Bloomberg (@business) July 7, 2016
What Does This Mean for Consumers?
Although the stock market took an initial hit from the Brexit decision, most Americans don't need to worry too much about the situation in the short term. In fact, many stand to benefit from the lower interest rates on loans now being seen everywhere.
With the cost of a fixed-rate mortgage now at the lowest level in three years, it makes sense that applications for such products have also risen to their peak in the same timeframe. Much of this is being driven by current homeowners looking to refinance their current mortgage. Indeed, applications for refinancing are now almost double what they were in July 2015.
Clearly, it's in a borrower's best interest to get the best deal possible on their mortgage. But Realtor.com cautions against making big decisions without doing the requisite research. Refinance-seekers should calculate their savings with the up-front refinancing fee in mind. This initial fee can often exceed $2,000.
For those who are in the market for a new home altogether, patience and diligence pays off in the end. A mortgage is a vital financial asset that will stick around for a long time. Although refinancing may be an option down the road, it pays off in the long run to make an informed choice the first time around. By finding a lender you can trust, dealing with one of the most important decisions in life will get a whole lot easier.