While no one should be rooting for a weak economy, it does present a few advantages for cash-strapped home buyers and owners.After a disappointing jobs report, it doesn’t look likely that the Federal Reserve will raise interest rates later this month—or anytime soon. (Basically, the number of new jobs created hit a five-year low in May.)
And as a result, mortgage rates are expected to stay at their current lows—or fall even further.
“The real beneficiaries are people who are in the process of buying a home this spring or summer,” says realtor.com®‘s chief economist, Jonathan Smoke. “They can buy more of a home with the same amount of payment, or they have an easier time qualifying” for a loan.
That’s big, as these warm-weather months are the peak home-buying time of the year—many home buyers prefer to make a move while their children are on summer break.
Mortgage rates were at an average 3.7% on 30-year-fixed loans as of Friday, according to realtor.com data.
“The jobs report has already resulted in lenders coming out with much lower rates today—as much as an eighth of a point lower in some cases,” says Matt Graham, CEO of MBS Live, a data platform for mortgage professionals.
Last year around this time they hit 3.98%, according to Freddie Mac data. But that’s still much lower than the 6.76% in July 2006, according to Freddie Mac, before the U.S. housing market tanked the global economy.
Even a fraction of a point can equal big savings for homeowners. For example: Lopping just half a percentage point off the interest of a 30-year fixed-rate mortgage on a $200,000 home could save some homeowners about $56 a month, Graham previously told realtor.com.
A lower mortgage rate isn’t expected to result in more loan applications, saysDon Frommeyer, CEO of the National Association of Mortgage Brokers, a trade group based in Plano, TX. But more of those applications are likely to be approved—particularly if mortgage rates fall even further.
That’s because interest rates affect how much borrowers shell out each month to pay back their loans. If those bills are smaller, they have lower debt-to-income ratios. Those ratios are used to determine if someone can qualify for a loan, as well as how much they’re eligible to borrow.
Lower rates could also be a boon for homeowners who have yet to refinance. But given that lower rates have been available for the past few months, there isn’t expected to be a mad dash to refinance.
Homeowners should also run the numbers before refinancing their residences, warns mortgage lender Elysia Stobbe of NFM Lending in Jacksonville, FL. It may save them a nice little chunk of change each month, but the process can still cost more than a pretty penny to do so when factoring in a host of fees and costs that vary by state.
They also need to think about how long they plan to stay in their homes. If they think they might sell in a year, they may spend more on the refinance than they wind up saving.
“It’s important to look long-term,” says Stobbe, the author of “How to Get Approved for the Best Mortgage Without Sticking a Fork in Your Eye.” “The longer you stay in that home, the more money you’re saving.”