Rate update: Thank Brexit for your mortgage rate

 Interest Rates, Residential Mortgage  Comments Off on Rate update: Thank Brexit for your mortgage rate
Jul 052016

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By G. Steven Bray

Brexit, the British vote to exit the European Union, has done wonders for US interest rates, which are at record lows. While stock markets shook off their initial panicky response to the vote, bond markets seem to have their eyes on the longer term. While I think it’s unlikely the Brexit will result in economic calamity, it has introduced significant uncertainty. We haven’t been down this road before, and calamity is a possible outcome, even if an unlikely one. Investors account for this risk by buying long-term bonds, which has pushed Treasury rates to historic lows.

How should you respond? Mortgage rates are now within a fraction of their all-time lows, and unlike previous visits to this range, I think this time we may hang out here a while. I really don’t see any strong motivation for rates to rise. I think Fed rate hikes are off the table for now, and economic data continues to be equivocal. Mortgage rates haven’t caught up to the rapid drop in Treasury rates, so if we can hold this range, mortgage rates should leak lower.

But don’t hear that as a solid recommendation to float your rate. Mortgage rates have dropped roughly a quarter-point in a week, and investors do like to book profits from time to time. A short-term bounce higher isn’t out of the question, and an unexpected shock is always a possibility. If you want to roll the dice for lower rates, I suggest you set a circuit breaker – a rate you don’t want to lose. If rates rise to that level, trip the circuit and lock.