Will Mortgage Interest Rates Drop Below 3% Because of the CoronaVirus?

Uncertain economic times, like the pandemic and the threat of a worldwide economic collapse, often bring low mortgage rates. As of 5/29/20, rates have been falling because of these fears as investors have shifted their money into safer Treasury bonds. That has lowered their yields, which mortgage rates tend to track.

Mortgage rates could potentially fall below 3% for some borrowers if the economic rebound from the coronavirus shutdown is prolonged. Technically, they should be below 3% now but are being held artifically high because lenders couldn’t handle the volume of loans that would result and investors wouldn’t buy mortgages at the expected rate which would stagnate the money market.

For mortgage rates to drop further, there must be a huge demand from investors to purchase mortgage bonds below 3%. Usually, investors buy mortgages as a safety net when the stock market is in free-fall but it’s not right now.

Also, investors are reluctant to buy mortgages right now because they’re afraid homeowners will refinance again, eliminating the earned interest plus they’re worried about loan defaults and forbearance, as the pandemic threatens people’s jobs and businesses.

Even if rates do drop below 3%, bank lending standards will likely remain tight. As a result, borrowers with lower credit scores or those seeking jumbo loans that can’t be sold to Fannie Mae or Freddie Mac, will have a harder time getting a mortgage. Thus, rates for riskier mortgages are not likely to fall much, if at all.

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