Interest rate volatility refers to the variability of interest rates on loans and savings over time. As a business owner, it’s vital to recognize and track interest rate volatility to take advantage of high savings rates and low borrowing rates.
Volatile markets are usually characterized by wide price fluctuations and heavy bond trading. They often result from an imbalance of trade orders in one direction. For example, right now in real estate, there is an influx of buyers and not enough sellers to balance the proportions.
While the financial health of borrowers affects the interest rate they will be offered on a loan, economic factors and government monetary policy affect the whole mortgage rate universe. There are five major factors at play, and all of them reflect the basic rules of supply and demand in one form or another: Inflation, the rate of economic growth, federal reserve monetary policy, the bond market, and housing market conditions.
In addition, COVID-19 has played a large part in the uncertainty of the current market. It has shifted trends in not only the housing sector but other industries as well. With unprecedented times, people look for security and control. In the mortgage sector, this has paved the way for many refinances as well as raising cash by liquidating assets.
With vaccinations underway, the past couple of weeks has produced more volatility given the potential for incoming information to change what markets are thinking about the future. In terms of refinances, currently, it’s a matter of responding quickly to lock in as low a rate as possible. Refinancing for even a 1 percent lower rate is often worth it. One percent is a significant rate drop and will generate meaningful monthly savings in most cases. For example, dropping your rate from 3.75% to 2.75% could save you $250 per month on a $250,000 loan, or $3,000 annually.
On the purchase side, the picture still seems to be inventory-driven more than anything. Closing times are critical as borrowers need to stay competitive. Given this volatility, it’s key to get the borrower the right rate incentive – to close quickly and to act quickly.
If you have any further questions about the current rates or market in general, give us a call at (760) 930-0569 and we will be happy to assist you.