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“Brexit”–and what it means to mortgage rates today

brexit graphicYou have probably heard about the important vote in the United Kingdom: Britain will leave the European Union. What you may not know is the effect an event in Europe could have on you here in California.

How “Brexit” affects you

The results of Thursday’s election in the UK has roiled financial markets all over the globe. The U.S. stock market reacted with heavy selling: the Dow Jones Industrial Average was down more than 500 points at times. This volatility causes “flight-to-safety” buying—investors sell stocks, but move their cash into safer investments, such as U.S. Treasury bonds, which are viewed as having nearly zero risk.

They also pour money into Mortgage Backed Securities, which are also very safe, but with a much higher yield than Treasuries.

All this buying of bonds means that their prices are moving higher. This is welcome news for anyone in search of a new mortgage to buy or refinance a home in the San Francisco Bay Area.

Mortgage lenders sell most of their loans to investors. Fannie Mae and Freddie Mac top the list of these investors. These two mortgage giants pool the loans they have bought into a type of bond called Mortgage Backed Securities (MBS). When the demand for MBS is higher, their price increases. This higher price means that the lenders can sell their loans for a higher price, so they lower the interest rates on the mortgages they offer.

The news of Britain’s exit from the European Union (“Brexit”) has sparked furious activity in the financial markets worldwide. This morning’s chart for the MBS looks like this:

MBS Chart

The mortgage market at the open on Friday 6/23/16

Each green bar means that the price of the MBS increased from the day before. A long bar means a large change in price. The MBS market normally moves 10-25 points from one day to the next. Today, however, the market opened with a 75-point gain from yesterday’s close. This is an unusually large increase.

What this means for you

Lenders look at the MBS market each day as they prepare their rate sheets. Because of today’s sharp gain, rates are lower—nearly .25% lower than yesterday’s pricing.

What you should do now

If you are thinking about buying soon anywhere in the San Francisco Bay Area, now is a good time to act; today’s lower rates mean a lower payment for the home you want—or more home for the payment you can afford. If you are considering a refinance, you should lock a rate as soon as possible; your potential savings are higher today than ever before. Keep in mind that it is highly unlikely that rates will move any lower than they are today—but very likely that they will “bounce” higher in the very near future.

Be careful!

Any time the market makes big moves like this one, there is increased volatility—prices make wide swings in both directions. Holding out for further improvement could lead to disaster: you could miss the boat entirely.

We are here to help you take advantage of this opportunity. You can call us anytime at 925-383-2846.

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