Last week, the United Kingdom voted to leave its place in the European Union. Because of Thursday’s Brexit vote, we anticipated mortgage rates could drop to historic lows. Today we can confirm mortgage rates dropped about one-eighth of a point after the financial commotion overseas. With interest rates already at three-year lows, this affords to you a great opportunity to refinance or purchase a home.
Brexit has created aftershocks to the global economy, many of which we have witnessed over the weekend and will likely continue to see. The stock market took a major hit, the pound depreciated in value and investors are moving their money to alternative opportunities.
Why This Vote Made Mortgage Interest Rates Go Down
Why would a vote across the Atlantic impact you or anyone else in the U.S?
Well, we are part of the global economy. This means shocks in other areas of the world can affect us – and they do – a lot more than they did 30 years ago. A vote in the UK – a big one like leaving the European Union – has created uncertainty among investors, as they don’t know what the coming weeks and months will look like. Because of this uncertainty, investors want to find more stable, safer investment opportunities. Instead of keeping their money in the stock market (which went down a lot on Friday), they might put their money in government bonds or mortgage-backed securities (MBS), among other options.
One relatively safe investment is an MBS, which are oftentimes fully backed or sponsored by the government. Because of this, they offer lower interest rates for investors, but are more predictable and less risky than the stock market. Investors put their money in MBS’s, which are then lent to mortgage companies who lend it to you, so you can purchase or refinance your home. Because all of these investors are putting their money into MBS’s, there is a greater supply of money to lend to you. Thanks to the theory of supply and demand, as the supply of money goes up, interest rates go down. This is a beautiful thing, because you get a lower interest rate on your mortgage.
Originally published by Victoria Slater at http://www.quickenloans.com/blog/brexit-drops-mortgage-rates-historic-lows