Mortgage rates hit a new low again
Mortgage rates hit new lows again, giving a record number of homeowners the opportunity to refinance.
The median fixed mortgage rate fell to a record low of 2.86% for 30 years, according to Freddie Mac, a government sponsored agency that supports millions of mortgages. This was the ninth time the interest rate hit a new low in 2020.
Read more: Mortgage rates hit all-time lows: is it time for a refinance?
According to Black Knight, a mortgage data and analytics firm, the interest rate could allow 19.3 million U.S. homeowners to cut their interest rate by at least three-quarters of a point by refinancing the largest population ever.
However, some homeowners may not be able to take advantage of the benefits due to stricter standards and overburdened lenders.
"Consumers enjoy the lowest interest rates most of us will ever see in our lives," said Jeremy Sopko, CEO of Nations Lending Corp., a mortgage lender. "The question is whether they can use these tariffs or not."
Sold house sign in suburban midwestern setting. Focus on characters.
Refinancing could be more difficult
Those looking to refinance an existing mortgage could face roadblocks because there are too many refi applications for lenders to process, especially during the pandemic, Sopko said. According to the Mortgage Bankers Association, the volume of refinancing requests last week was 60% higher than the previous week.
Read more: The new rules for buying and selling a home in a pandemic
"Given the increasing demand, we are seeing a lot of lenders who simply cannot handle the application volume," said Sopko. "A problem now for many lenders is getting underwriters and processors back behind their computer screens to ease the clogging of the pipeline."
Qualifying for a mortgage has also become more difficult. An index measuring how difficult it is to qualify for a mortgage fell 4.7% in August. A decline suggests that lending standards are becoming increasingly restrictive.
Qualifying for a mortgage has also become more difficult. An index measuring how difficult it is to qualify for a mortgage fell 4.7% in August. (Source: Getty Creative)
"Lending continues to tighten amid the still looming uncertainty surrounding labor market health, although other credit applications and home sales data show a strong upturn," said Joel Kan, vice president of economic and industrial forecasting at MBA.
A lack of loan programs that accept borrowers with low credit scores, lower down payments, and reduced documentation also contributes to an overall decline in loan availability, Kan said.
"Low rates have sparked robust buying demand"
Home buyers will also try to hedge these historically low rates, but face other obstacles. A shortage of houses for sale remains a key factor, Sopko said.
"Inventories are scarce in most of the country and that was exacerbated by a flood of people leaving big cities terrified by the COVID-19 pandemic," Sopko said. "Although prices are historically low, the question is whether or not you can just find a home in your price range."
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The number of houses on the market fell more than 30% in August compared to the same month last year, according to the Zillow property list. At the same time, unperturbed by the pandemic, buyers continue to pour into the market.
"These low rates have sparked robust purchase demand activity, up 25% year over year and growing at double digits for four straight months," said Sam Khater, Freddie Mac's chief economist. "On the way into the fall, however, it will be difficult to maintain the growth momentum in purchases, as the lack of supply is already a limitation on sales activity."
Dhara is a reporter for Yahoo Money and Cashay. Follow her on Twitter at @Dsinghx.
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