Mortgage Rates Hitting a floor ... and Why

We all have been glued to our news sources the last few weeks.  You, like many, have likely seen that the Federal Reserve has taken action to cut the Fed Funds rate to zero.  Many people have been asking if their mortgage rate will also drop or if they can get a near zero rate for their loan.  I received an email from one of my lenders yesterday that provided information on the relationship between the Federal Funds rate and mortgage rates, that I think is worthwhile to pass along.

A Few Things You Need to Know

1. The Fed does not control mortgage rate.  Their cuts apply to the rate for loans between the Fed and banks or from one bank to another.

2. The Fed's actions most quickly impact the rates on the U.S. Treasury Securities. These markets can influence Mortgage Backed Securities, which then in turn influence mortgage rates.

3. In times of uncertainty, there are other factors that can overrule the norm. Remember 2008? Despite aggressive cuts by the Fed, mortgage rates hit a floor and never fell further. The same is happening right now.

So Why Is This Happening?

1. Volume. Demand for mortgage purchases and refinances are stretching the lending industry capacity. To slow the demand, rates may hover at higher levels. 

2. Reduced Investment. When investors know that borrowers will refinance early, they expect to lose income. What that means is that investors will buy fewer new mortgages that are backed by securities. Less demand, means higher mortgage rates.

The Facts
A 0% Fed funds rate will not lead to a 0% mortgage loan rate. Mortgage bonds will always have a level under which investors will not purchase them, and mortgage rates reflect that threshold.

The Good News
Mortgage rates are still at historical lows. Now is the opportunity to save significantly by refinancing or locking in a great rate on a purchase. If you are considering purchasing or refinancing this year, now is the time to get your things in order so you can take advantage of rate fluctuations and save yourself some money.

If you need a referral to a mortgage lender to assist you in re-financing or getting pre-approved for a home purchase, give me a call!

Information from Team Irwin, Directors Mortgage Lake Oswego OR