Mortgage Rates Drop Means Savings for Borrowers

After a sharp increase at the start of September, mortgage rates are dropping once more.

The benchmark 30-year fixed mortgage rate fell to 3.62% on October 3 as the sell-off in the stock market and an 800-point drop in the Dow Jones Industrial Average caused a quite unexpected turnaround. A year ago, the same mortgage rate was 4.89%. That means the average borrower taking out a $300,000 mortgage can now save almost $3,000 per year.

This is great news for potential homeowners and for the refinance market as well. The impact is already showing on the market. Home-buying activity rose as mortgage applications increased by 8.1% compared to the previous week. Refinance applications shot up by 14%. Compared to 2018, the number of refinance applications is up by 133%.

“Although refinance activity slowed in September compared to August, the months together were the strongest since October 2016,” said Joel Kan, vice president of economic and industry forecasting at MBA. “The slight changes in rates are still causing large swings in refinance volume, and we expect this sensitivity to persist.”

Lenders say that a refinance is worth the work and the fees if you can lower your rate by 75 basis points or more.

"Anyone who purchased in the last year should probably take a look at refinancing, rates have dropped significantly," said Whitney Bulbrook, who owns Carolina Ventures Mortgage. “On a $300,000 loan, you're probably going to save about a hundred dollars a month if you can drop the interest rate a half percent.”

Lower mortgage rates are also having an effect on US homebuilders. Builder Lennar Homes posted higher-than-expected new orders in the third quarter as a direct result of dropping rates.

“The market for new homes has been improving from last year’s pause, as lower interest rates have stimulated demand and improved affordability, while the overall fundamentals of the economy have remained strong,” said Lennar’s Stuart Miller. “I know that there are a lot of questions about upcoming potential recession and things like that. Our customers don’t seem to be viewing it that way, and I think that the housing market in general seems solid and strong and continuing to improve.”