Todays Rates: Purchase - 30 Year Fixed: 3.125%   APR: 3.201%     15 Year Fixed: 2.375%   APR: 2.494%      30 Year Fixed High Balance: 3.125%   APR: 3.205%      15 Year Fixed High Balance: 2.500%   APR: 2.608%          Refinance - 30 Year Fixed : 3.375%   APR: 3.432%     15 Year Fixed: 2.625%   APR: 2.726%      30 Year Fixed High Balance: 3.375%   APR: 3.436%      15 Year Fixed High Balance: 2.625%   APR: 2.769%

A Special Report: What will Brexit mean for the US Mortgage Markets?

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Voters in the United Kingdom last week unexpectedly passed a referendum to leave the European Union.

This ‘Brexit’ shock caused worldwide distress in the financial markets, due to sudden uncertainty about the UK’s economic prospects and worries about a possible contagion effect in which other countries could also decide to leave the EU.

 

What are the global financial market implications of Brexit?
The British pound fell to its lowest level in over thirty years, global stock markets collapsed, and worldwide sovereign bond yields fell to new all-time lows, including further negative in many countries such as Germany and Japan.
U.S. treasury bond yields dropped accordingly too, with the 10 Year Treasury Note falling from 1.74% to 1.46% directly after the referendum vote.  The main driver for this drop in U.S. Treasury yields is that investors at times of great uncertainty demonstrate a flight to quality, in which they move their money to the safety of government bonds, raising prices and thus driving down yields.  These investors would rather take a lower guaranteed yield from a U.S. Treasury that will not default, versus possibly losing money in declining equity markets.  In addition, according to Bloomberg, traders have pushed back their expectations for the earliest the Fed will possibly rates to the middle of 2017, so these lower bond yields should be here for the foreseeable future.
What does Brexit mean for the U.S. Mortgage Market?
The Brexit fallout is leading to greater demand other similar U.S. fixed income instruments, such as mortgages backed securities.  As a result, mortgage rates have declined and should continue to drop to historic lows, according to Zillow.new_home-1024x507
Now would be a great time to start looking to buy a new home, due to the added home affordability from these lower expected monthly mortgage payments.
This sharp drop in mortgage rates can also be beneficial for homeowners’ looking to refinance their mortgage in order to drop their mortgage rate.  According to Corelogic, as of February 2016, approximately 38% of active loans have a 30 Year Fixed mortgage rate greater than 4.50%.  This significant drop in mortgage rates can result in substantial savings in a borrower’s monthly mortgage payments.
In addition, along with rising home values. these favorable mortgage rates can make it more affordable for borrowers who are looking to do a cash-out refinance, in which the client takes additional equity out of their home for such reasons as home improvement, college tuition or debt consolidation.
If you are currently in the process of obtaining a mortgage and you are happy with your quoted mortgage rate, it might make sense to lock it in and not risk losing out these historic low mortgage rates, which could be adversely affected by any future positive economic data. Overall, I believe that mortgage rates should remain in this range for the near future stemming from continued global economic uncertainty from the Brexit referendum.
By Stephen Casil
Vice President of Secondary Markets
Lyons Mortgage Services, Inc.

 

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