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Published by Contour Mortgage on March 20 2020

What The Fed’s Emergency Rate Cut Means For Mortgages

With the fallout from the COVID-19 coronavirus pandemic wreaking havoc on the global economy, the Federal Reserve twice slashed interest rates in March—lowering rates to near-zero percent in an attempt to patch financial markets and business activity. 

The Federal Open Market Committee (FOMC), the Federal Reserve’s monetary policymaking panel, cut its baseline interest rate to the rock-bottom range of 0 to 0.25 percent, while purchasing $700 billion in Treasury bonds and mortgage-backed securities. These drastic measures are meant to provide businesses, banks, and households with the tools necessary to withstand the current economic downturn. 

These combined actions seem to signal that the Federal Reserve places the coronavirus-related decline on par with the 2008 global financial crisis. But the main difference this time around is that the Fed is acting a bit more proactive. You see, the Fed did lower interest rates just prior to that 2008 Great Recession—but they didn’t drop the rates fast enough or far enough to stave off a market meltdown. 

By torpedoing interest rates to near zero, the Fed is trying to keep U.S. money markets running as smoothly as possible. 

How Does This Impact Mortgage Rates?


Even before the Fed took action with the above measures, mortgage rates were already at extraordinarily low levels, hovering at just above 3 percent. This inspired many homeowners to examine their options to refinance in an effort to save a significant amount of money. What’s more, the low-interest rates gave homeowners cause to weigh the possibility of reducing the term of their mortgage from 30 years down to 15 or even 10 years. 

According to economists, “the current average rate for a 15-year fixed mortgage refinance is 3.27 percent and a 30-year is 4.1 percent. While the Fed rate cut does impact mortgages, long-term loan rates are more closely tied to the 10-year Treasury yield. Demand for refinancing is high and rates are rising from record lows recently posted.”

However, that doesn’t mean you shouldn’t consider refinancing your mortgage loan. Experts agree that while interest rates are turbulent and the refinance market is surging, anyone with a 4 percent or higher mortgage should look into locking in a lower rate. But the time to act is now, as a volatile market means that mortgage interest rates could be back on the rise at any time. 

Will Mortgage Rates Go Back Up?


The experts all seem to agree that mortgage rates will continue to bounce back from the historic lows of the past couple of weeks. 

Online financial resource Bankrate.com recently published its interest rate predictions for the next week—a practice the advisory company does on a regular basis. The surveyed experts delivered a mostly unified opinion—50 percent said rates will rise, while none expect rates to drop, and 50 percent said rates will remain relatively unchanged. 

Going off those forecasts, the best time to investigate mortgage rates with a trusted lender is still right now. 

Takeaway


The best way to find out if now is the right time to refinance your home mortgage is to contact Contour Mortgage for a free consultation. There’s no cost to finding out if you can save some money by reducing the term of your mortgage or if now’s the right time to invest in property with the equity from your existing home. 

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