How The Fed Rate Cut Affects Mortgage Rates On Home Loans

Gustan Cho Associates are mortgage brokers licensed in 48 states

BREAKING NEWS: How The Fed Rate Cut Affects Mortgage Rates On Home Loans

The Federal Reserve Board announced a second emergency interest rate cut on Sunday, March 16th, 2020. The Dow Jones Futures have plummeted over 5% after the Fed announcement triggering circuit breakers to suspend trading. Investors panicked after the news. The Federal Reserve Board lowered interest rates to 0.0% to 0.25% in a move to lessen fears of an economic meltdown in the United States. The Dow Jones Industrial Average plummeted 2,800 plus points at the open on Monday morning halting trading for fifteen minutes.

The Dow, as well as other markets, were down all day closing nearly 3,000 points in the red. Panic set in on Monday for Americans due to fear of the coronavirus pandemic. Many state governors have declared a state of emergency to close restaurants, bars, and other places where crowds gather. President Trump announced the coronavirus outbreak may last into the summer months causing the markets to further tank on the downside. Many lenders are getting calls from mortgage borrowers questioning how the fed rate cut affects mortgage rates on home loans. A 0.0% Fed rate does not mean mortgage rates are at 0.0%.

How The Fed Rate Cut Affects Mortgage Rates

How The Fed Rate Cut Affects Mortgage Rates?

Many Americans commonly are confused about How The Fed Rate Cut Affects Mortgage Rates. The Federal Reserve Board Federal Fund Rate is indirectly tied to mortgage interest rates. The Central Bank cut its benchmark interest rate to 0.0% on Sunday in an emergency stimulus rate cut move due to the coronavirus pandemic. This marks the second such emergency interest rate cut in a couple of weeks. However, this does not mean that mortgage rates will be 0.0%. Normally, mortgage rates go lower when the Fed cuts rates in the coming days and/or weeks.

The stock markets have been volatile and plummeting. As the stock and other equity markets freefall, the yield on the 10-year Treasury drops. What this means is mortgage rates drop as well.

The Federal Reserve Board issued the following statement:

Why Are Lenders Increasing Rates When Mortgage Rates Are At Historic Lows?

Why Are Lenders Increasing Rates When Mortgage Rates Are At Historic Lows?

Consumers see it all over the news that mortgage rates are at historic lows. This is true. Mortgage rates have hit rock bottom due to the stock markets going into recession territory and the yield on the 10-year Treasury is under 1.0%. Add the Fed dropping interest rates to 0%, mortgage rates should be even lower. However, mortgage rates have been increasing. Just a week ago, mortgage rates were at 3.125%. The following day, rates have skyrocketed to 4.25% At the end of last week, mortgage rates for the same 3.125% borrower closed at 4.75%. Why is this so?

Why are lenders increasing rates when mortgage rates are at a historic all-time low? This is because lenders are at full capacity. What this means is they are at full capacity and do not have the operations staff to process and underwrite mortgage loans. Until all the mortgage rate locks have been processed and closed, lenders will be charging high rates. Once the locked loans clear their system and close, lenders should be dropping rates and price it accordingly.

How The Fed Rate Cut Affects Mortgage Rates And The US Economy

http://www.youtube.com/watch?v=UA4b7bv0kR0&ab_channel=Gustan Cho Associates-MortgageBankers

The target inflation rate is another measurement tool for mortgage rate changes. Fundamentally, prior to the coronavirus stock market crash, the economy was fundamentally strong and solid. After the coronavirus pandemic, Hell broke loose in the global economy. Inflation is still under the 2% rate. Lenders should be adjusting mortgage rates in the coming days and weeks. Today’s nearly 3,000 drop in the Dow Jones Industrial Average was a shocker to many. Experts warn the markets will get worse before they get better. Many homebuyers are canceling or postponing entering into a real estate purchase contract until what becomes of the coronavirus. Many fear another 2008 financial crisis while others are panicking about losing their jobs. What good are low mortgage rates if you do not have a job and the ability to repay your new mortgage?

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