Investors rushed into the relative safety of bond markets on Monday morning as the stock market fell, causing yields to fall and mortgage rates to fall.
The average interest rate on the popular 30-year fixed mortgage fell to 5.99% on Monday, the lowest level since 2022, according to Mortgage News Daily. At this time last year, the interest rate was 6.89%.
The drop in yields was due to a combination of factors, including new uncertainty over tariffs, cooling inflation and economic weakness shown in Friday’s lackluster gross domestic product report.
Interest rates briefly fell to the 5% range for a few hours in January, but rebounded on the same day. That’s less likely this time, said Matthew Graham, chief operating officer of Mortgage News Daily.
“This High Five visit looks more sustainable on paper,” Graham said. “Unless the overall bond market declines significantly, mortgage rates are likely to remain closer to current levels than last time. Also, if the overall bond market improves further (i.e., the 10-year Treasury yield falls below 4.0%), mortgage rates are likely to rise gradually.”
Lower interest rates could further stimulate refinancing, which has surged in the past few weeks. According to the Mortgage Bankers Association, mortgage refinance applications are up about 130% compared to a year ago.
Lower interest rates are a positive sign heading into the all-important spring housing market. Buyers entering the market today will have more purchasing power than they did last spring.
For example, a buyer with a 20 percent down payment on a median-priced home of about $400,000 will pay $1,916 a month in principal and interest, according to the National Association of Realtors. A year ago, that payment would have been $2,105, a difference of $189.
Although the difference in monthly payments may not seem like much, more borrowers will generally qualify for a loan with today’s lower interest rates. “With mortgage rates approaching 6%, an additional 5.5 million households that could not qualify for a mortgage a year ago will be able to qualify at today’s lower rates,” Lawrence Yun, chief economist at The Realtors, noted in the pending January home sales report.
He cautioned that most newly eligible households would not take action immediately, “but based on past experience, about 10% could enter the market, which could result in about 550,000 more new homebuyers this year compared to last year.”
So far, there has been no significant response to lower interest rates in mortgage applications for home purchases. These applications were up just 8% year over year as of mid-February.
Correction: This article has been updated to correct that 30-year fixed mortgage rates on Monday matched the lowest level since 2022. In previous versions, milestones were listed incorrectly.
