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The much-anticipated policy announcement came from the European Central Bank (ECB) on Thursday. Although we focus on mortgage rates on an entirely different continent, major events happening in the European market almost always affect the equivalent US market.
When it comes to interest rates, the market of choice is bonds. ECB officials have announced a new bond-buying program that will add demand for certain European bonds. All other things being equal, excessive demand for bonds leads to lower interest rates.Low interest rates in Europe spill over into low interest rates in the US
The above is a bit oversimplified, but it’s accurate. There is actually a simple reason for today’s low interest rates. Domestic economic data is very weak, with one key business barometer (Philadelphia Fed Index) charting like this (bottom line = weak economy):
In other words, the Philly Fed index shows the biggest economic weakness since the first coronavirus lockdowns, and the six-month outlook is even worse.
Weak economic indicators are one of the old best friends of low interest rates. A weak economy helps ease demand-side inflationary pressures (inflation is the main enemy of low interest rates). Investors are also looking for safer havens (investments that won’t suffer big losses if the economy continues to contract), and the bond market is the quintessential safe haven.
Needless to say, European monetary policy decisions and weak US economic data have combined forces today to push investors into bond markets. Bonds underlying mortgages in particular have improved enough to justify a fairly noticeable drop in interest rates. We don’t see all of that today as mortgage lenders tend to avoid making adjustments.
However, we have found that some of the market improvements are reflected in pricing. The average lender currently offers traditional 30-year fixed interest rates in the mid to mid 5% range.
Note: Toll quotes are all over the place today and one of the main reasons is the huge value of discount points in the current market. For example, during more normal hours, you’ll see two comparable loan quotes (his two options from the same lender) with one discount point on one option in exchange for a lower interest rate of 0.25%. There are cases. However, its discount points can currently be purchased at rates between 0.5% and 0.625%.
None of the above is intended to provide commentary on whether it is wise to pay points. upfront cost (assuming you refinance in about 6 months). The only reason I share information is to explain why some rate quotes may seem different at first glance. In many cases they are no different at all. One lender simply cite a scenario with additional upfront costs (ie points) that reduce the rate.
In most scenarios by most lenders, the borrower should be able to choose between paying a lower rate with a lower upfront cost or a lower rate with a higher upfront cost. Given both options, one simple way to evaluate them is to calculate the number of months it will take to recoup the additional initial cost (feel free to adjust the investment opportunity cost as needed). please), ask yourself if that is possible. Sell or refinance before the “break-even” month.
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