by: Gaye Jones ~ AnnieMac Home Mortgage
I’ve had several calls, asking if mortgage rates are going to zero? The answer is no, the Fed rate only effects rates that are tied to the prime rate (think HELOC’s, some credit cards, business loans)! The drop in the Fed rate might trickle down to mortgage rates but based on what has occurred in the past year, I would say it probably won’t make any difference. What does make the difference is where investors put their money.
Mortgage rates are driven by the bond market. When the bond prices go up then mortgage rates go down. What we just saw happen was the bond market went up dramatically which dropped the mortgage rates to the lowest I’ve seen in my lifetime (and I’ve been around a bit!).
The downside to the huge drop in rates was the influx of those wanting to refinance. The estimates were that in just 2 weeks’ time our industry was expected to process more loans than we do in an entire year. Investors who purchase the Mortgage Backed Securities (MBS) put a stop to the flurry of those wanting to refinance by raising the rates.
So now what? The Feds announced they are purchasing $200 billion in MBS and $500 billion in US Treasuries over the next few months. As our CEO stated “The Federal Reserve, in a coordinated global effort with other Central Banks, decided to throw a good portion of the kitchen sink at the surging coronavirus pandemic and the ensuring market meltdown”. This will provide much needed liquidity to the markets.
What should you do? If you are in the process or purchasing a home or wanting to refinance and do not have a locked rate, get with your loan originator to make sure they have all your documents and are ready to lock in a rate for you when the market settles.