Mortgage rates fell in the week ending Oct. 9 as fewer workers were on the job.
The average rate on a 30-year fixed-rate mortgage fell nine basis points to 6.25% APR in the week ending Oct. 9, according to rates provided to SS by Zillow. A basis point is one one-hundredth of a percentage point.
A fuzzy jobs outlook
When the economy sheds more jobs than it creates, it’s a sign that the economy is slowing. Mortgage rates tend to fall. Likewise, when hundreds of thousands of federal workers stop drawing paychecks, they spend less money. The slowdown in spending acts as a drag on the economy, applying downward pressure on mortgage rates.
It’s clear that around 750,000 federal employees have been furloughed during the government shutdown. But the rest of the employment picture is blurry because the government didn’t release the September jobs report. It was supposed to be issued Oct. 3, and the shutdown put the kibosh on that.
Without an official employment report from the Bureau of Labor Statistics, lenders and other businesses rely on alternative information sources. One is payroll company ADP, which reported that businesses shrank payrolls by 32,000 jobs in September. Keep in mind that ADP’s report doesn’t count government jobs; it counts only private sector jobs, so it’s a measure of underlying trends in the economy.
“Despite the strong economic growth we saw in the second quarter, this month’s release further validates what we’ve been seeing in the labor market, that U.S. employers have been cautious with hiring,” said ADP’s chief economist, Nela Richardson, in a news release.
Lenders rely on second-string information
ADP isn’t alone in warning of a cooling economy. In an Oct. 6 report, the Bank of America Institute said unemployment payments this month are around 10% higher than a year ago. “In our view, this suggests some upward momentum to unemployment,” the institute said in a statement.
Lenders usually give less weight to the ADP and Bank of America Institute reports than to the government’s employment data. But with the government shutdown continuing, lenders take whatever information they can get.
What it means for refinancers
Any decline in rates is good news for potential refinancers. There’s not a one-size-fits-all guideline for when to refinance your mortgage. If you can reduce your interest rate by at least half a percentage point, it’s worth considering a refinance. You can make a stronger case for refinancing if you can cut your rate by at least three-quarters of a percentage point.
That means if you have a mortgage with an interest rate of 6.75% to 7% or higher, you can try running the numbers through a refinance calculator.
Lenders charge fees when you refinance, typically 2% or more of the amount you’re borrowing. To “win” at refinancing, you need your monthly savings to eventually exceed the fees. That takes time. The number of months it takes to recoup your refinancing fees is called the break-even point, which you can calculate to figure out if a refinance is worthwhile.
If the numbers work for you — and you feel secure about your job — you might want to talk with a lender to discuss a rate-and-term refinance.