Detroit — Michigan lenders are scrambling to meet a surge in mortgage demand as rates for 30-year fixed-rate loans have fallen below 3.5%, while rates on 15-year fixed mortgages are below 3%.

Mortgage buyer Freddie Mac said the average rate for a 30-year fixed-rate mortgage fell to 3.45% from 3.49% last week, while the average rate on a 15-year fixed mortgage slipped to 2.95% from 2.99%.

And the Federal Reserve's decision to make an emergency cut to the prime lending rate by a half-point to offset the economy from the impact from the virus outbreak could drive mortgage rates even lower. The WalletHub personal finance website projects that mortgage percentage rates will decrease by an average of 0.26% as a result.

"We're on the cusp of seeing mortgage rates at a historic low because right now, you can't turn on anything without hearing about the coronavirus," said Bill Banfield, executive vice president of capital markets at Quicken Loans. "Fear is pushing people out of stocks and into bonds."

The rush of investors toward the safe havens of U.S. government securities pushed the yield on the 10-year Treasury note to below 1% on Tuesday, a record low. Long-term mortgage rates usually follow the yield on the 10-year note.

Banfield said mortgage rates have fallen by more than a half-percent over the last three months.

"We absolutely have seen a decline in interest rates that started to fall in May 2019 throughout the year," he said. "January and February started out strong with businesses doing lots of financing, and then the coronavirus news broke (about the spread to U.S.) last Monday and we started to see it fall again."

He said interest rates of 3.5% on a 30-year loan, with 0.7 discount points for the loan are pushing many to refinance.

"Rates on a $250,000 (mortgage) ... if you can lower your rate by three-quarters of a point, a homeowner would save $1,300 (a year)," he said, adding the last time they saw rates fall this quickly was into the fall through the 2016 election.

Pontiac-based United Shore Mortgage said Tuesday it has seen an increase in calls for mortgages since interest rates dropped.

"As rates drop, obviously it’s a great time for somebody to get a mortgage, refinance out of their current mortgage and take advantage of lower rates," said Alex Elezaj, chief strategy officer for United Shore.

"It’s also a great time for someone to buy a home. With the lower rates, you can usually afford more house. So we see a lot of activity not only with refinances but with purchases."

United Shore Mortgage employs about 5,400 and expects to hire another 2,000 this year. Elezaj said that they were prepared for an increase in call volume because they train and hire in anticipation of growth.

"Although rates dropped, we were still anticipating this kind of volume and growth through various different strategies that we had," he said. "It didn’t come as much of a surprise for us. The rates dropped, but in terms of growth, we were preparing for this kind of growth anyway."

Tim Ross, CEO of Troy-based Ross Mortgage Corp., said the Fed rate cut will put further downward pressure on mortgage rates, "creating an excellent opportunity for homeowners to refinance ..."

"Interest rates are at historic lows and any savings you might obtain by waiting for them to go lower is sure to be offset by the higher price you will pay for a home,” he said.

The move by the Federal Reserve to cut the benchmark rate didn't sit well with Lysa Davis, CEO of Detroit-based Compliance and Community Consultants, a firm that regularly consults for financial institutions. She said the Fed's move is a short-term solution that will overburden banks and mortgage lenders.

"I think it’s irresponsible," Davis said. "I know they want to drum up the economy, but my perspective is that if you make more loans, you’re just making more money. To lower the rate under 3% to stimulate the stock market that's dropping and there’s all this panic, I don’t think it’s a good solution."

She said it will be good for consumers, with the monthly payment of a $400,000 mortgage of less than $2,000 a month.

"It will put customers in a good position so they can afford more house if they choose to do so," she said. "But I don’t think it’s a responsible way to stimulate the economy."

cwilliams@detroitnews.com

srahal@detroitnews.com

Twitter: @SarahRahal_

Staff Writer Mark Hicks and the Associated Press contributed to this report.