The British exit from the European Union in late June, along with shockingly low job growth in the United States in May, has more or less eliminated the possibility of the Federal Reserve adjusting the key funds rate this month. It remains unclear whether Fed officials will decide to do so within the next few months, but experts are urging those who want to lock in today's low mortgage interest rates to buy or refinance their property soon.
The possibility of an interest rate hike this summer is looking less and less likely.
Mortgage Rates Should Stay Low Throughout Summer 2016
While it is possible that rates will rise at some point during the summer, such a move from the Fed is looking less likely, which means consumer interest will probably remain low through August.
Right now, the average mortgage rate for a 30-year fixed-rate loan is 3.63 percent. That is 0.49 percent below the going rate at this time last year and 0.46 percent less than the average rates at the end of 2015. Even more, the summers of 2013, 2014 and 2015 all experienced mortgage rates above 4 percent. The low rates mean today's home buyers have about 6 percent more buying power than they did in June of 2015. According to predictions from Realtor.com, rates will likely stay low all summer but rise next year. As a result, this summer is the time to obtain or refinance a mortgage so you can take advantage of the low rates.1
Those with Adjustable Rate Mortgages may especially want to consider refinancing to a fixed-rate mortgage. ARMs allow your mortgage payments to fluctuate after a specified period of time, usually about five to seven years. Those with ARMs whose fixed-rate period has ended should expect to see their own rates increase whenever the Fed does decide to make its move. Today's low rates, combined with the looming possibility of a hike, make it a pretty good time to refinance into a more advantageous long-term mortgage package.2
Mortgage Applications are Already Increasing
The Mortgage Bankers Association's Weekly Mortgage Applications Survey for the week ending June 3, 2016, found that, on a seasonally adjusted basis, mortgage applications rose 9.3 percent from the previous week. In addition, the number of refinance applications increased 7 percent.3
What Buyers and Homeowners Should Know
The nation's current real estate climate does indeed seem to be in support of buyers and those who want to refinance at the moment. Nevertheless, there are still a few major challenges they currently face. While lower interest rates mean more favorable mortgage terms, they also make it more difficult to actually qualify for one. It is riskier for lenders to approve mortgages when rates are low, so buyers applying for a mortgage need to make sure they are in the best financial shape possible.
If you are considering applying for a new loan, make sure to check your credit report for any errors that could be detrimental to your score. If you find any, contact the credit bureau right away to have them
removed. While it can take a substantial amount of time for a score to improve, do what you can to decrease your debt-to-income ratio and increase your frequency of on-time, in-full payments.
Of course, no one can know for sure what will happen to the U.S. economy over the next year or so, which is why all of this talk about whether interest rates will rise or fall can be nothing more than speculation. Ultimately, it is up to you to determine if you think it is best to take advantage of today's low rates or to wait and see what happens.
Matthew Graham, the chief operating officer of Mortgage News Daily, explained that low mortgage rates generally do not stick around for very long, so those who do not want to take a risk would be advised to move quickly. Risk-takers, on the other hand, may want to see what happens in the European markets, which lately have been causing U.S. interest rates to drop. If you do decide to take a risk and wait, Graham said to make sure you set a specific limit for how high you will let interest rates get before you decide to make sure your rates are locked in.4
3Mortgage Bankers Association
4Mortgage News Daily