Last week was the most volatile week for mortgage rates, ever (seriously). It’s no secret that mortgage rates have been on a rollercoaster ride lately. There’s a lot of incorrect information out there so we wanted to provide some clarity on what is happening with mortgage rates and help you understand that the Federal Reserve did NOT cut mortgage rates on Sunday, March 15.
Here’s a brief summary of what has been going on:
- Mortgage rates were at all-time lows on Monday, March 9, for most lenders.
- The average U.S. rate for a 30-year fixed mortgage fell to a record low of 3.29% during the week ending March 5, according to data from Freddie Mac. The 15-year fixed-rate mortgage fell even lower to an average of 2.79% during the same week.
- By Friday, March 13, rates had risen faster than they’ve ever risen in one week.
- By Friday, March 13, the gap between mortgages and Treasury yields was the widest on record.
- On Sunday, March 15, the Federal Reserve announced a 1% rate cut.
- Any improvement in the bond market in the coming days and weeks will most likely only recover some of the huge losses from last week (March 9-13).
What does this all mean?
Long-term rates jumped a full point last week and in some cases more than a full point. This all happened while the stock market took a nosedive. Typically, mortgage rates drop when the stock market is struggling but not last week. We are in uncharted territory right now.
When we have things happening in other markets such as all-time low 10-year Treasury yields (Monday) or the biggest-ever single-day loss in stocks (several times, depending on the index), it's not hard to imagine that big things are happening elsewhere in financial markets.
The Fed cutting rates is a short-term overnight bank-to-bank lending rate which DOES NOT have a direct impact on mortgages since the Fed does not control long-term mortgage rates. This cut will lower rates on credit cards, home equity loans, auto loans, and other consumer loans that are impacted by the prime rate.
What does this mean for mortgage rates?
Mortgage rates are based on the Mortgage-backed Securities (MBS) market which is independent from the Treasury bond as well as the stock market. MBS typically reacts within certain tolerances of those financial markets.
The impact on mortgage rates is unknown right now. Rates could go higher if the stock market rallies and causes the long-term rates such as mortgages to increase. If the stock market plunges further, mortgage rates could drop. And keep in mind, that this can change hour by hour.
What are other factors that impact your interest rate?
On any given day, there are a variety of factors that can impact your interest rate such as:
- Home price and loan amount: Your home price minus your down payment will determine how much you’ll borrow which helps determine how much the interest rate will be.
- Down payment: Generally, a higher percentage down payment equals a lower interest rate. The more money you put down, the more stake you have in the property.
- Loan term: Shorter terms (like a 15-year or a 20-year) generally have smaller interest rates than a 30-year term.
- Interest rate type: Interest rates come in two basic types: fixed and adjustable. Fixed rates do not change over time. Adjustable rates, on the other hand, have an initial fixed period then go up or down based on the market. For example, a 5-year ARM loan will have a fixed-rate for the first 5 years and then the rate will fluctuate from the 6th year onward.
- Loan type: Different categories of loans (like conventional, fixed-rate, FHA, etc.) have different rates.
- Credit score: Primarily based on credit report information usually sourced from credit bureaus. Typically, this is called your FICO score and is based on your credit history.
How does this impact other aspects of the economy?
- A home equity line of credit (HELOC) will adjust relatively quickly to the lower Federal Funds Rate—more than likely in the next billing cycle. HELOCs are typically linked to the prime rate (i.e. the interest rate that banks charge). So, when the Fed adjusts its rates, the prime rate usually follows immediately.
- Falling interest rates mean that banks will offer lower interest rates on their savings and money market accounts. CDs typically also see a decline in rates, though these products tend to reflect much of the lower yield before the Fed implements the cut.
- Many variable-rate credit cards change the rate they charge customers based on the prime rate, which is closely related to the Federal Funds Rate. So, as the Federal Funds Rate changes, interest on variable-rate cards is likely to quickly adjust, too.
- The latest Fed move will likely lower interest rates on auto loans.
- Lower interest rates are generally a positive for the stock market, and a rate cut is intended to buoy stocks. Lower rates make it cheaper for businesses to borrow and invest in their operations, and so companies can expand their profits at a lower cost. In addition, lower rates make stocks look like a more attractive option for investors.
What's causing all this?
In one word: Coronavirus (COVID-19). The stock market reaction is well-documented, but the record rally in rates is just as impressive. There was massive drama in the mortgage market. All-time low mortgage rates were already in place by Monday, March 2. Refinance demand was already spiking, but the subsequent rate jump was the biggest ever.
What should you do if you’re looking to refinance your home?
If you’re ready to move forward with refinancing your current mortgage, go ahead and fill out an application here. We’ll need the following items to get you started and speed up the process as much as possible:
- Current mortgage balance
- Current interest rate
- Current loan term/type (i.e. 30-year fixed, 15-year fixed, FHA, etc.)
- Years remaining on your current loan
- Estimated appraised value of your home
- Whether or not you’re paying Private Mortgage Insurance (PMI)
- Current payment (principal and interest, property taxes, homeowner’s insurance, mortgage insurance)
- Your reason for refinancing (lower rate, lower payment, cash out, remove PMI)
- State of your current residence
Most of these items can be found on your mortgage statement.
Please note, you cannot get a lower rate just because the Fed cut rates again. You MAY be able to get a lower rate in the coming weeks thanks to the Fed’s reinvigorated mortgage bonds buying efforts.
What should you do if you’re looking to purchase a new home?
If you’re ready to move forward with purchasing a home, fill out an application here to get the process started. Now’s a great time to get a game plan. Your rate cannot be locked until we have your application and appropriate documentation.
The bottom line:
Lower rates aren’t immediate or even guaranteed, and unfortunately, we do not have a crystal ball telling us what’s ahead of us with mortgage rates. The key here is to make sure your Home Loan Specialist has what they need from you in order to lock your rate if mortgages rates become more desirable.
So, if you’re looking to buy a home in the next 90 days or if you’re interested in refinancing your current home, now is a great time get your application started. Call volumes are very high right now and this helps us get you into a 90-day rate lock as soon as we can.