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Monday was a difficult day for stock market investors. But it was a great one for anyone shopping for a mortgage.

The average rate for a 30-year mortgage — which had already been falling for weeks, helping spark a surge of mortgage applications — tumbled to a new low of 3.34%, according to at least one measure, its lowest level in at least three years.

Why Rates Are Falling

On Monday, fears coronavirus had gained new footholds outside of China sent stocks plunging. At the same time, bond markets rallied as traders rushed to purchase safe-haven assets like U.S. Treasurys, which guarantee investors' will get their money back, along with regular interest payments. When bond prices rise, interest rates fall, since investors are essentially competing to lend the government and other borrowers money.

On Monday, yields on the 10-year Treasury note fell 11 hundredths of a percentage point to 1.36%, their lowest level since July 2016. While that, of course, means lower borrowing costs for the government, 10-year Treasury notes are also the key benchmark for 30-year fixed mortgage rates. (While the term for most mortgages is 30 years, homeowners usually pay them off sooner.)

Mortgage rates, which peaked at 4.9% as recently as late 2018, slid for most of last year, as U.S. economic growth flagged and investors began to anticipate the Federal Reserve would cut benchmark short-term interest rates. Rates rebounded slightly in the fourth quarter of 2019, then slid sharply again in January. Earlier this month, the average 30-year rate slipped below 3.5% for the first time since September, and the Mortgage Bankers Association said applications jumped 5% on a seasonally-adjusted basis, to their highest levels since 2013.

That was before Monday's stock market sell-off pushed 30-year fixed mortgage rates even lower, according to data tracked by trade publication Mortgage News Daily, and 10-year Treasury yields continued to tumble Tuesday morning.

Where Rates Are Headed from Here

If the slide in mortgage rates has you considering whether to refinance your loan, you still face a difficult quandary: Will rates continue to fall, as they did for much of 2019?

The short answer is, nobody knows what interest rates are going do.

The Wall Street Journal recently reported that Federal Funds futures, financial instruments traders use to bet on the bank's interest rate policy, suggest investors see a 76% chance of two or more rate cuts in 2020. But even that wouldn't necessarily mean mortgage rates continue to decline. Last year, rates fell steadily all spring as investors anticipated a rate cut — but then actually rebounded slightly when the bank finally acted in early August.

One additional thing to consider: Treasury rates certainly could fall further, especially if fears about slowing global economic growth bear out. But as Mortgage News Daily points out, mortgage rates are already essentially as low as they have ever been, with previous lows in 2012 and 2016, both bottoming out around 3.3% to 3.4%.

In other words, while nothing is preventing mortgage rates from falling further, another significant drop would put them in uncharted territory. The upshot is that if you really are thinking of refinancing, it probably makes sense to move soon. "It's far easier to screw up this opportunity by waiting too long than by acting too quickly at this stage in the game," writes Mortgage News Daily.

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