Mortgage rates have been at record lows in recent years, but they just made a sharp plummet after news of Brexit. U.S. mortgage rates are heavily influenced by world events, especially ones that cause uncertainty. And there is nothing quite as uncertain and unprecedented as Britain divorcing itself from the EU. Financial markets have been taking a plunge, and everybody is running around like chickens with their heads chopped off, unsure of what to do next.
The lack of an economic direction has prompted investors to put their money into safer investments like mortgage-backed securities (MBS). And when investor demand for MBS goes up, interest rates go down. The result: rates are taking a nosedive straight into the ground.
That’s good news for homebuyers! Everyone thought rates would rise to at least the mid-4s by the end of this year. Instead, they have dropped to the mid-3s. Which actually makes homes more affordable. A refinance applicant saves about $60 per month, per $100,000 borrowed, for every 1% reduction in rate. A home buyer can afford a home that costs 10% more. In other words, borrowing money from the bank is crazy cheap right now!
More on how Brexit affects other aspects of the housing market here.