Coronavirus fears knocking mortgage interest rates down


Investors are fleeing to safe-haven investments amid renewed coronavirus fears, sending 10-year Treasury yields sharply lower and this, in turn, will push U.S. mortgage rates to new lows.

On Monday morning, the 10-year fell 8 basis points to 1.3856 percent - the lowest since July 2016. The 30-year Treasury bond plunged to 1.8321 percent, a record low.

There are more than 80,000 confirmed cases of COVID-19 and some 2,700 deaths to date, according to a press conference held by the World Health Organization earlier this week. Worries about a slowing world economy impact the interest rates consumers pay.

Sparked by an upsurge of virus cases beyond China, reaching South Korea, the Middle East and Italy, investors are retreating to bonds, and this will help mortgage rates stay low. Stock prices fell sharply during the first part of the week.

“The falling yield on the 30-year Treasury bond is reflective of the concerns about the impact of coronavirus on the U.S. and global economies; however, the 30-year bond doesn’t directly affect mortgage rates,” says Greg McBride, CFA, Bankrate chief financial analyst. “Instead look to the 10-year Treasury note, where the yield has fallen.”

The first case of COVID-19 was detected on Dec. 31, and just two days later the 30-year fixed-rate fell from 3.9 to 3.86 percent. Rates have been mostly declining since, falling to 3.75 percent as of Thursday.

“Anything that raises the specter of slower economic growth or produces a flight to quality in financial markets tends to be good news for mortgage rates,” McBride says. “The coronavirus threat has definitely fueled concerns about slower global economic growth and the prevailing uncertainty about how long the coronavirus will remain a threat or the actual economic impact are keeping a lid on rates.”

How this affects borrowers

People shopping for homes will likely see lower rates in the coming weeks as the 10-year hits new lows. For existing mortgage borrowers, another drop in rates might clear the path for refinancing.

“The refinancing door has blown open with mortgage rates continuing to fall amid fears of slower global economic growth,” McBride says. “This helps those looking to refinance a mortgage as well as would-be homebuyers – provided they can find a home to buy.”

If rates do tumble lower than their already-low current levels, then consumers should be mindful of the traffic jam that will create. Expect lenders to be strained, which can slow down the borrowing process.

“Make sure to have your pay stubs, tax returns, bank statements, and other necessary documents together so there is no delay in processing. Many lenders will be bottlenecked and the applications that get worked will be those that have all their documents submitted,” McBride says

Eligible borrowers who choose to go with higher payments, but significantly lower interest rates can, get a 15-year fixed-rate mortgage for about 3.08 percent compared with a 30-year fixed-rate mortgage at 3.75 percent.

Finally, if you currently have an adjustable-rate mortgage (ARM), you’re likely enjoying the dip in rates, which is giving you a break in monthly payments. However, don’t count on rates staying low. As the coronavirus showed, there are always wild cards so trying to predict mortgage rates can end up costing you money later.

ARM borrowers might want to lock in a rate now by refinancing into a fixed-rate mortgage while we’re still below 4 percent.

“If you plan to still be in the home at the point your adjustable mortgage resets, then refinancing into a fixed rate now is a compelling trade,” McBride says.