Mortgage rates have started dipping below 3% thanks to the Fed and Powell
With help from Chairman Jerome Powell and the Federal Reserve, mortgage rates have begun sliding to levels that would have seemed impossible a few months ago.
Homebuyers and homeowners who comparison-shop for a home loan might now find 30-year fixed-rate mortgages being offered at rates below 3%.
Daily surveys show rates on mortgages backed by the Federal Housing Administration (FHA loans) and the Department of Veterans Affairs (VA loans) are averaging less than 3%. And a major mortgage wholesaler has introduced a conventional 30-year mortgage with a rate as low as 2.5%.
All of this has been happening as Powell sounds alarms about the coronavirus and the Fed works to prop up the battered economy.
Why rates are going so low
The Fed chairman has been on a kind of tour spreading the message that the COVID-19 pandemic is giving the economy one of its worst beatings in history.
"The scope and speed of this downturn are without modern precedent and are significantly worse than any recession since World War II," Powell told members of the Senate Banking Committee on Tuesday.
He had delivered the same warning during an online speech, then repeated it on CBS' "60 Minutes" over the weekend. The central bank chief says the economy may not recover until the end of next year, and that the government may need to provide more help.
After Powell first shared his grim outlook last week, mortgage rates that were already at or near record lows started tumbling further.
"If investors are worried about a prolonged recession, they’ll buy safe assets like bonds, causing interest rates to go down — which we saw happen after Chairman Powell’s comments," says Brendan Philips, capital markets analyst with the online mortgage lender Better.com.
Frank Nothaft, chief economist with CoreLogic, says mortgage rates have been under even more downward pressure because the Fed has been buying up mortgage-backed securities to bolster the economy.
Those are mortgages bundled together into investments similar to bonds. The Fed's buying spree has been pushing up prices for mortgage-backed securities — which has helped mortgage interest rates go down.
Where sub-3% rates are showing up
If you look around, you'll find mortgage rates under 3%.
The average rates on 30-year fixed-rate FHA-backed loans have already fallen to 2.75%, according to surveys from Mortgage News Daily and The Mortgage Reports, and the typical rates on 30-year fixed VA loans are even lower, says The Mortgage Reports.
Some lenders are offering conventional 30-year fixed-rate mortgages at rates under 3%, but you may have to pay the fees known as discount points, says Nothaft.
"Our forecast is for the 30-year conventional fixed-rate mortgage to average 3.0% during the second half of 2020," he says. "Some days it will be lower than 3% and some days higher."
A recent forecast from Realtor.com predicted that average rates "may slide under 3% by the end of the year."
One of the nation's largest home lenders is moving quickly and deeply below the 3% mark. United Wholesale Mortgage has announced it's making available a mortgage that can be offered to borrowers at a jaw-dropping 2.5% interest.
"We believe that the housing market is going to be strong and we want to do our part to help more people get into their dream homes as we get through this pandemic together as a nation," says UWM's CEO Mat Ishbia.
The "Conquest" mortgage is being offered through independent mortgage brokers, for both purchase and refinance loans. The fine print includes a stipulation that a borrower cannot have taken out a UWM loan within the last 18 months.
How to get a mortgage below 3%
An astoundingly low mortgage rate will reward you with a dramatically lower monthly payment.
To find a rate south of 3%, you've got to shop, shop, shop around. Gather and compare rates from several lenders.
Make sure your credit score is exceptional (in the 800 to 850 range) or very good (740 to 799). Haven't looked at your score in a while? You can peek at it for free.
And never try to "time the market," says Philips, with Better.com.
"The cost of waiting to see if rates go lower could backfire, not making it worth the risk. The best rule of thumb is that if the numbers make sense, seize the opportunity," he says.
