Dramatic reduction of mortgage interest rates below 6% — what is really changing?

Mortgage Market at a Turning Point

On Friday, we witnessed a historic moment in the mortgage market — interest rates fell below 6% for the first time in several years. It was not an ordinary day in the market. The driving force behind this move was an administrative decision to purchase $200 billion worth of mortgage-backed securities, aimed at directly improving credit availability for Americans.

How does it work in practice?

Fannie Mae and Freddie Mac, the two biggest players in the mortgage financing market, have taken on the role of primary buyers. When these institutions purchase mortgage bonds from lenders, banks receive new capital that they can use to issue fresh loans. More capital in the system means less pressure on margins — simple market mathematics. Their combined portfolio has already reached $230 billion, and the planned additional purchase of $200 billion would nearly double the current commitment.

Concrete results are noticeable. The 30-year mortgage interest rate has dropped by over a percentage point in the past year. The 15-year loans reached 5.55% on Friday, representing an equally spectacular decline. In a market where we usually see daily movements of fractions of a percent, such sharp decreases are absolutely exceptional.

Market assessment: optimism with reservations

UBS analysts estimate that the initiative could lower rates by over 0.2 percentage points, which should stimulate both housing construction and the turnover of existing properties. It sounds impressive, but the devil is in the details.

JPMorgan Chase calculates that $200 billion is only about 1.4% of the estimated $14.5 trillion mortgage market. It’s comparable to a drop in the ocean. Additionally, most current homeowners hold old loans with significantly lower rates, averaging around 4.4% — such individuals rarely decide to sell, which limits real estate market dynamics.

What does this mean for borrowers?

We are dealing with a measure that, on one hand, indeed lowers mortgage interest rates for new borrowers, but on the other hand, its actual impact on the housing market remains limited by a structural problem — owners with good rates are not motivated to move.