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Mortgage Rates Hit 2 Week Lows

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On Thursday, the European Central Bank (ECB) made a long-awaited policy announcement.Our focus is Mortgage rates On completely different continents, major events in the European market most often affect comparable US markets.

In terms of fees, the market of choice is bonds. ECB officials have announced a new bond purchase program that will add demand for certain European bonds. Excessive demand for bonds, if all other conditions are the same, will result in lower interest rates.Low interest rates in Europe spill over to low interest rates in the U.S.

The above is a bit oversimplified, but accurate. There’s actually a simple reason why prices are cheaper today. Domestic economic data is very weak, and one major business barometer (Philly Fed Index) has created the following graph (bottom line = economic weakness).

In other words, the Philly Fed Index shows the biggest financial weakness since the first blockade of covid, saying that the six-month outlook is even worse.

Weak economic data is one of the oldest and best friends of low Interest level.. The economic downturn helps ease inflationary pressures on the demand side (inflation is a major enemy of low interest rates). It also encourages investors to look for safer shelters (investments that don’t lose a lot of money as the economy continues to shrink), and the bond market is a typical safe haven.

Needless to say, European monetary policy decisions and weak US economic data have joined forces today to push investors into the bond market. Bonds, which underlie mortgages in particular, have improved enough to justify a fairly significant decline in interest rates. See all of this today as there is a general tendency between the timing of market improvements and mortgage lenders to avoid adjusting interest rates too early in volatile market conditions. can not.

However, we have seen some of the market improvements being passed on to rate offerings. The average lender currently offers top-tier traditional 30-year fixed rates ranging from middle to upper middle 5%.

Note: Currently, rate estimates are available throughout the map. One of the main reasons is the great value of discount points in the current market. For example, during normal hours, you may see two equivalent loan quotes (two options from the same lender). One option has one discount point in exchange for a 0.25% lower rate. However, at this time, you can purchase at that discount point at a rate of 0.5% to 0.625%.

None of the above is intended to provide a commentary on whether paying points is wise. Indeed, even the additional initial cost of discount points is not a break-even point (assuming you refinance in about 6 months) if you know that the charges will be significantly lower in 6 months. The only reason I share the information is to explain why some rate estimates look so different. In many cases, they make no difference. One lender only cites a scenario with additional upfront costs (ie points) to lower the rate.

In most scenarios with most lenders, the borrower should be able to choose between paying a lower upfront cost at a higher rate or a higher upfront cost at a lower rate. If both options are offered, one easy way to evaluate them is to calculate the number of months it will take to recover the additional upfront costs (you are free to adjust the investment opportunity cost if needed). ), Ask yourself if you have the potential to do so. Sell ​​or refinance before the break-even month.

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