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Brexit Good for Mortgage Rates

Britain’s affirmative vote to exit from the European Union has helped push rates in the US to a new low for the year. Mortgage rates are the lowest they’ve been in over 3 years and within 0.25% of the all-time record lows experienced in 2013.

The narrowly-passed (52% to 48%) secession means certain financial change for Britain and all of Europe. On the negative, Britain will no longer share in many of the trade and commerce agreements in place for European Union members. The flipside is that it will also no longer be burdened by financially weaker European nations. Greece, Italy and Portugal are just three examples of European Union members that have recently been on the brink of Bankruptcy.

Britain’s stock market dropped roughly 3% the morning immediately after the vote. As bad as that might sound, the US’s Dow Jones Industrial Average dropped by a similar 3.39% the same day. And the other countries around Europe? France, Germany and others saw their stock markets drop between 7% and 8% – averaging losses two and a half times worse than those experienced in Britain. Clearly financial markets believe that the European Union got the worse end of the deal in this vote. The British can walk away feeling as though they got this one right.

With all that money being pulled out of stocks, it needed somewhere else to go – a safe haven. In addition to gold (which soared to a 2 year high), US bonds are also a favorite safe haven during market volatility. And since mortgage bonds, specifically mortgage-backed securities, are what determine mortgage rates, we’ve seen mortgage rates drop to a new low for the year. Mortgage rates as a whole haven’t been this low since 2013.

A conventional 30 year fixed is available today as low as 3.375%. Well-qualified borrowers will find they can obtain this rate with little to no closing costs. Similarly, a 20 year fixed is available as low as 3.125% and a 15 year fixed as low as 2.75%. Those who wish to invest in “points” to buy down their rate will find options available even lower.

This recent drop in rates is likely to create a new refi boom. Nearly every homeowner who still has a rate over 4% on their mortgage will find it makes good financial sense to refinance once again. Moreover, many homeowners who bought their homes on FHA loans will find this creates a good opportunity for them to refinance into a conventional loan to get rid of their mortgage insurance (PMI) and still retain a great rate on the mortgage. And homeowners with equity will find their house is likely to be the cheapest source of funds to finance other projects or other debts.

At a time when wage-based inflation is nonexistent and consumer confidence is waning, this refi boom may be exactly what the Americas economy needs. American homeowners saving money on their mortgages will have more money to reinvest into the economy every month. While other European countries may be cursing Britain’s vote to secede from the union, American homeowners should be saying, “Thank you, Mate!”

For more information on how to obtain a mortgage or refinance your home, please contact:

Arnaud Dufour
Senior Mortgage Banker
Phone: 888-680-5777 x302
Direct: 714-677-4107
adufour@dljfinancial.com
CA BRE #:01360217
NMLS #: 335758

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