February is shaping up to be an excellent month to refinance a mortgage or snag an affordable monthly payment when buying a home. Rates are at their lowest since Election Day 2016, and they’re likely to remain in the basement through February.
Mortgage rates were low when January began, and they steadily fell as the month wore on. The 30-year fixed-rate mortgage averaged 3.96% APR on Jan. 2, and slipped to 3.75% APR on Jan. 31, according to NerdWallet’s daily rate survey. That matches the average rate on Election Day — Nov. 8, 2016. The last time the 30-year fixed rate was lower was in the last week of October 2016.
If you can reduce your mortgage interest rate by three-quarters of a percentage point, or possibly by half a percentage point, you might benefit by refinancing, especially if you plan to keep the home for several more years. Working with a mortgage refinance calculator will help you calculate the estimated monthly and lifetime savings. It will also show your estimated break-even point, when the accumulated monthly savings surpass the refinancing fees.
January’s decline in mortgage rates coincided with the growing awareness of the threat of a new coronavirus that could spread from person to person, first identified in the Chinese city of Wuhan. On Jan. 6, the U.S. Centers for Disease Control and Prevention recommended avoiding all nonessential travel to China. On Jan. 10, the New York Times reported that someone in China had died from the viral infection. Jan. 10 is also the date when mortgage rates began to decline in earnest.
Mortgage rates fell from then through the end of the month because of concerns that the new coronavirus could potentially cause a pandemic that could disrupt global trade and slow the U.S. economy.
Neither a pandemic nor a significant disruption in global trade are sure things, knock on wood. If officials succeed in containing the virus and damping fears of its economic effects in February, then mortgage rates could stabilize or even rise.
The U.S. economy continues to grow, and economic growth tends to push interest rates upward. Mortgage rates are likely to rise when fear of the coronavirus dissipates, whether that happens in February or later. Until then, fear is a stronger factor than economic growth.
Nerdy tip: When mortgage rates are at their lowest in years, it’s a good idea to lock a mortgage rate when you’re satisfied with it. It’s possible that rates could fall further, but it’s equally possible that they could rise.