From December 2015 to mid-February 2016, for the first time in nearly ten years, the Federal Reserve increased its rates. However, in that period, the mortgage rates dipped to their lowest level—something not experienced in over three years. Also, we must note, the largest refinance need (nearly more than $110 billion in due notes) are set to mature in the CMBS market from 2016 through 2021.
Keeping all these updates in mind, in this post, we will examine why the mortgage rates have dropped after there was a Federal increase. And since the trend of a downward mortgage rate continues, here is a trusted refinance guide for your reference.
A recap on 2016’s rate outlook
Whenever economic insecurity has investors sell riskier stocks and buy safer bonds, the rates dip. So when the prices of bonds rise in such a way, the yields (bond rates) decrease. That is precisely what is happening in 2016. This year, the economic weaknesses of non-U.S. regions have led the investors to buy large sums of treasury bonds and U.S. mortgages.
Further, the lower cap rates and the low expectations of slower equity growth in the commercial real estate sector, have further led many investors to refinance maturing due notes in the U.S. from the secondary market and private CMBS investment funds, now leading the refinance commercial mortgage sector. In December last year, the 30-year fixed rates were calculated to be of:
- 4 percent on a conforming loans
- 4.125 percent on a high-balance conforming loans
- 3.875 percent on a jumbo loans
Since that time period, almost every bond has rallied; further, as the result rates on the topmost loan tiers decrease (by close to 0.5 percent), the effects are translated or visible on the lower monthly payments. We have even listed some of the translations/effects below.
- $85 will get lowered on a mortgage of $300,000
- $170 will get lowered on a mortgage of $600,000
- $253 will get lowered on a mortgage of $900,000
The savings can really become a strong rationale to get a refinance. Further, these rates will decrease within the next few months if such weaknesses (of non-U.S. states) continue. So even with this downward rate trend, the rates decrease and increase along the way.
The different factors that cause the refinance boom in 2016
Refinances, now, have gone way beyond rates; today, they even include income, property, and asset eligibility.
During the previous rate dips (which happened because of one of the many crises) most refinances got derailed as investors owed a lot of money—much more than the worth of their investment properties. And at that same time, lending guidelines became extremely tight, which led to incomes getting disrupted.
Presently, the U.S. economy has become very supportive of refinances because of many factors such as:
- Stable or increasing real estate prices
- Low unemployment of 4.9 %
- Income is trending upward
- Low inflation that is aided by a dip in the oil prices
- The present-day refinance rates have decreased significantly
Because of all these factors, the borrowers and the lenders have experienced an exceptional rise in the refinancing sector this year. And as per trade pundits, this boom will remain steady through 2021 because the lending guidelines, issued by the leading financial institutions, such as Deutsche Bank and JP Morgan, holding the largest CMBS adjustable notes, have become stricter and have a smaller appetite for risk in this sector; exercising significant caution for lower future yields.