The Fed Dropped Rates to 0%, What Does that Mean for Mortgage Rates?

Americans rejoiced when they heard the Fed dropped rates to 0%. That has to mean mortgage rates dropped close to 0% too, right? Unfortunately, that’s not the case. In fact, the Fed rate and mortgage rates aren’t directly related.

The Fed cut short-term interest rates and mortgage rates are based on bond rates, which are long-term rates. Typically, mortgage rates follow the 10-year treasury rate, which isn’t what the Fed cut. Lately, because of its safety, most investors have flocked to the bond market, which has caused rates to go down, so you have seen lower mortgage rates, but not as low as the Fed’s 0% interest rate.

How the Fed Affects Mortgage Rates

What really happened is that mortgage rates fell so much that the Fed had to step in and buy mortgage-backed securities just to get rates to go back up, slightly. This was due to the large influx of refinance applications because of the steadily dropping mortgage rates. The numbers were well beyond the capacity of most lenders, so the Fed helped slow things down.

Where Rates Stand Today

Mortgage rates have slightly increased, but they are still well below their levels of last year. It’s still a great time to refinance if you qualify. With millions of Americans out of a job, there aren’t as many refinances going on, so lenders have a lot of time to process loan applications.

If you are one of the lucky ones that are still employed and can prove that you can afford your loan payments, it could be a great time to refinance and I’d be happy to help!

The Benefits of Refinancing Today

Even if you are still employed and nothing changed financially for you, now is a great time to refinance. Not only can you take advantage of low rates, but you can do one of the following, all of which can put you in an even better financial situation, even a proactive situation that protects you for the future as well don’t know what is still yet to come.

• Lower your payment – With a rate/term refinance you can apply for a loan with a lower rate, therefore lowering your mortgage payment, saving you money each month.
• Change your term – If you can afford a different term, such as refinancing out of an ARM into a fixed rate or even refinancing from a 30-year to a 25 or 20-year loan can help you own your home faster and pay less interest, taking advantage of today’s low rates.
• Tap into your home’s equity – If you have equity in your home (you owe less than it’s worth), you can tap into that equity taking the cash for yourself. You can put the cash away as an emergency fund or use it to fund other things, such as debt consolidation or necessary home repairs.

I’m here to help you figure out the best steps to take with your mortgage during this time in our lives. Your finances are an important area of focus right now and I’m here to help you with one of the largest investments you’ve made, helping you keep your home while making it affordable.