Navigating Recent Fed Rate Cuts and Mortgage Implications

INDUSTRY UPDATE 3/16/20 Since the publication of this blog on March 5th, 2020, the Federal Reserve has made another rate cut in response to the ongoing coronavirus outbreak. On Sunday, March 15th, 2020, the Fed announced a significant reduction of its benchmark federal funds rate by 1%, bringing it to a range of 0% to 0.25%. While interest rates for homes have been historically low, it is important to note that this latest cut does not guarantee a drop to 0% or anything close to it. Read on for more insights or reach out to one of our Mortgage Advisors if you have any questions.

INDUSTRY UPDATE 3/5/20 Amidst the current market uncertainty and the global spread of COVID-19, the Federal Reserve took an unprecedented step by unanimously approving its largest one-time rate cut since the 2008 financial crisis. On March 3rd, the central bank reduced interest rates by half a percentage point. Although some wonder if this cut will be sufficient to safeguard the economy during the coronavirus outbreak, several economists predict that the US might still face a considerable slowdown or even a recession.

The Relationship Between the Fed & Mortgage Rates Contrary to popular belief, the Federal Reserve's actions do not have a direct and immediate impact on mortgage rates. For instance, just because the Fed announced an emergency cut of 0.5%, it does not necessarily mean that your mortgage rate will automatically decrease by 0.5%. While mortgage rates often follow market trends influenced by the Fed, there is no guarantee that this emergency cut will directly benefit homeowners in the short term. Here's a simple way to understand it:

• The Federal Reserve adjusts short-term interest rates to safeguard and sustain current economic growth.
• Mortgage rates, on the other hand, fluctuate based on long-term bond rates.

There is a possibility that mortgage rates may eventually follow suit, which would be good news for potential homebuyers. HousingWire suggests that the emergency rate cut could likely lead to lower borrowing costs for homeowners with variable-rate home equity loans tied to the U.S. prime rate, which moves in line with the Fed rate.

Increase in Refinances Due to Low Rates Irrespective of potential movements in mortgage rates, many homeowners are currently taking advantage of historically low rates by refinancing their existing mortgages. Mortgage refinancing involves paying off one loan with the proceeds from a new loan secured against the same property. This is typically done to secure more favorable loan terms, such as a lower interest rate or reduced monthly payments. Some other reasons for considering refinancing include:

• Pursuing long-term plans.
• Undertaking home renovations.
• Consolidating debt.

Traditionally, it has been advised to refinance if you can achieve a rate reduction of at least 2%. However, some lenders suggest that even a 1% savings can be a compelling reason to refinance your home. Presently, rates are at their lowest, making it an opportune time for refinancing. (We strongly recommend consulting a mortgage professional first.) At CrossCountry Mortgage, homeowners who refinance between March 1st and April 15th can save up to $1,040* towards closing costs.

For more information, don't hesitate to reach out to one of our knowledgeable Mortgage Advisors today!

*Credit not to exceed actual borrower-paid closing costs. Not applicable for FHA/USDA Streamlines or VA Interest Rate Reduction Refinance loan products. Promotion ends April 15th, 2020. Valid for applications submitted between March 1st and April 15th, 2020.