Mortgage rates head back down on fear of recession

BY ADRIAN D. GARCIA/BANKRATE.COM

Multiple benchmark mortgage rates trended down this week. The average rates on 30-year fixed and 15-year fixed mortgages both ticked downwards. The average rate on 5/1 adjustable-rate mortgages, meanwhile, also receded.

The average rate for the benchmark 30-year fixed mortgage is 3.71 percent, a decrease of 17 basis points from a week ago. A month ago, the average rate on a 30-year fixed mortgage was higher, at 3.81 percent.

At the current average rate, you’ll pay principal and interest of $460.85 for every $100,000 you borrow. That’s $9.67 lower, compared with last week.

The average 15-year fixed-mortgage rate is 3.10 percent, down 1 basis point from a week ago.

Monthly payments on a 15-year fixed mortgage at that rate will cost around $695 per $100,000 borrowed. The bigger payment may be a little harder to find room for in your monthly budget than a 30-year mortgage payment would, but it comes with some big advantages: You’ll save thousands of dollars over the life of the loan in total interest paid and build equity much more rapidly.

The average rate on a 5/1 ARM is 3.83 percent, down 5 basis points since the same time last week.

These types of loans are best for those who expect to sell or refinance before the first or second adjustment. Rates could be substantially higher when the loan first adjusts, and thereafter.

Monthly payments on a 5/1 ARM at 3.83 percent would cost about $468 for each $100,000 borrowed over the initial five years, but could increase by hundreds of dollars afterward, depending on the loan’s terms.

Logan Mohtashami, a senior loan officer with the AMC Lending Group, is among the 18 percent of experts who believe rates will head back up. He said, “Let’s take a look at last week. I talked about rates heading higher because of my 10-year yield forecast of 1.60 percent. Since that statement, yields sold off to 1.79 percent, came back down to 1.64 percent, rose again to 1.75 percent and now is back today to 1.60 percent, due to the inversion. I forecasted an inversion at the end of 2017.

“I believe this headline inversion is going to be bullish for the U.S. economy in 2020. It’s going to be very difficult to go into an election year with an inversion headline, weaker domestic PMI data, and a third farmer bailout (in addition to a flat stock market since 2018, when this trade war tap dance started). Keep an eye out for that 1.56 percent level on the 10-year yield, if we can close below that and get next-day follow-through, buying yields can head to all-time lows.”

Michael Becker, a branch manager with Sierra Pacific Mortgage, is one of the 55 percent of experts saying rates will continue going down. He said, “Treasuries are rallying on global growth concerns. In fact, the yield on the 30-year Treasury bond touched an all-time low as of this writing. Unfortunately, the lower Treasury yields haven’t completely made their way to mortgage rates, which are only at lows reached earlier this year.

“Mortgage-backed securities (MBS) haven’t rallied as much as Treasuries, partly because investors in mortgage-backed securities are worried about early mortgage repayments via refinancing if rates keep dropping. If they pay a premium on an MBS and the loan gets paid off via a refinance, then that investor could suffer a loss with an early repayment. Investors in Treasuries do not have this concern. If Treasury yields stay low or continue to drop we will eventually see it lead to lower mortgage rates. I think the growth concerns are not going away, and that mortgage rates will start to catch up and drop in the coming week.”

Mitch Ohlbaum, a loan officer with Macoy Capital Partners, said, “Mortgage rates will drop. Well, it seems that I was wrong last week when I said do not expect the 10-year Treasuries to fall below 1.70 percent, but we are down again from last week another 19 points making the 10-year 1.59 percent getting just within reach of the all-time low in 2016 of 1.27 percent. There is, and will continue to be, global pressure looking to escape negative yields — yes negative yields, meaning you will lose money if you hold them. What that means is, once again, the U.S. Treasury market is and will be the darling of investments across the globe as people and economies look for security.”

Dick Lepre, a senior loan officer with RPM Mortgage, said, “My rate forecasts are almost always based on a technical analysis of 30-year Treasury futures. The assumptions are that the 10-year will move in harmony with the 30-year and that mortgage rates will move with the 10-year. Concerned about early mortgage payoff in a falling rate market, investors started to stay away from buying mortgage-backed securities (MBS) lacking an accurate way of forecasting life expectancy. The result has been Treasuries and MBS moving in opposite directions on many recent days. Now for the good news: I am revising my call for the bottom of the 10-year yield down to 1.4 percent. This could happen in a month or could take until year-end.”