Record Low Mortgage Rates & Refinancing

With the new lows on home mortgage rates, we have been looking at refinancing for many clients. On July 16, 2020, the interest rate for a 30-year home loan had fallen to 2.98%. In addition, the average interest rate for a 15-year home loan had declined to 2.48%.^1,2,3

Good news for homebuyers
For context, just two summers ago, the average interest rate on a 15-year fixed-rate mortgage hovered around 4%, while the 30-year was in the vicinity of 4.5%.

While it's uncertain how long these historically low rates will last, we think they may be around at least though the fall, and possibly into next year. Keep in mind this article is for informational purposes only. It's not a replacement for real-life advice. It’s always a good idea to consult with your tax, legal, and accounting professionals before considering any changes to your living situation.

When looking at the tax advantages of refinancing, it might be a good idea to reference your last tax return. Mortgage interest is only deductible if you itemize deductions. With the standard deduction at $12,400 and $24,800 for married filing jointly, along with the $10,000 limit for state and local taxes, many people no longer itemize deductions.

For many of our clients, buying a home in the Bay Area means having a jumbo loan, which is a loan more than $765,600 in Santa Clara county. With jumbo loans, it is often impossible to get the lowest rates. It might still be worth refinancing, but you may face more fees or paperwork.

Good news for investors
Believe it or not, hopeful homebuyers are struggling to find the right property: on July 4, 2020, the inventory of existing homes for sale was 31% smaller than it was in 2019. Even with these market conditions, 61% of respondents to a recent survey felt that buying a home in 2020 was a good idea. This interest in purchasing a new home despite the COVID-19 pandemic may be considered a “coincident indicator” by many. In other words, if consumers feel confident enough to go home shopping, that could indicate slowly returning economic confidence as well.³

Good news for everyone
Real estate plays an integral role in the health of the economy. Even when considering the many advantages of homeownership, it can be easy to forget that it is one of the greatest sources of wealth and savings for many Americans.⁴

Whether or not rates will drop even lower is anyone's guess. Even though it seems unlikely, mortgage issuers are dealing with a level of uncertainty that makes it harder for them to judge risk and assess the long-term value of the loans they originate. Some banks are being more cautious than others and it might be worth the effort to shop around.

We often support clients in refinancing their mortgages by doing a breakeven analysis on a refinancing offer, connecting you to professional mortgage brokers, or talking over the decision to pay off a mortgage versus carry a mortgage into retirement. Let us know if you’d like to chat about this or any other topics you’re pondering. We are always here to help.

^{1. OCRegister.com, July 16, 2020                        2. Realtor.com, July 13, 20}

^{3. FreddieMac.com, July 16, 2020                        4. TheBalance.com, February 10, 2020}