It’s been a volatile few days for interest rates in the United States. On March 15, the Federal Reserve announced it would cut the federal funds rate to a range of 0 to 0.25 percent in an effort to encourage the flow of credit to consumers and small businesses. This created questions for many individuals, especially those in the process of buying a home or refinancing.
To answer some of these questions and clarify some confusion, I reached out to one of our trusted partners, Dereck Bowlen. Dereck is the Branch Manager for Synergy Home Mortgage in Caughlin Ranch. He’s been in the mortgage industry for more than 25 years and offered his perspective and advice.
Answers To Some Of Your Questions About Interest Rates
Does the Federal Reserve’s reduction mean I can get a 0% interest rate on a mortgage or refinance?
If the Fed rate is at zero, it doesn’t mean mortgage rates are at zero. Federal Reserve rates and mortgage rates aren’t tied together. One is the federal funds rate, which is what the banks and credit unions use to lend reserve balances to other banks and credit unions. Then, there’s the mortgage rate. They’re two pretty much separate animals.
Does the Federal Reserve’s interest rates affect mortgage rates?
It can in the long-term, but it’s not a direct correlation. I would tend to say, “No.” The mortgage rates are tied to other instruments and it’s not the federal funds rate.
With the Fed cutting interest rates, does it mean mortgage rates could go lower?
Could they go lower? Yes. Does it mean they could go higher? Yes. Mortgage rates are not affected by the Federal funds rate directly.
What is the lowest interest rate I can get right now for buying or refinancing a home?
Everyone’s situation is different. What’s your credit score? Is it your primary residence or is it a rental property? How much equity do you have in the home? There are different things that go into pricing the loan. There’s not a one size fits all for every borrower out there. There are different rates available on everyone’s rate sheets every day. You could maybe get a lower rate than the daily rate, but you may have to pay additional closing costs for that. Then the decision whether it’s cost-effective or not, that’s something your loan officer should be reviewing with you and crunching those numbers.
What can I do to be in the best position possible to take advantage of these low rates?
Have your application in with your trusted loan officer and make sure to give them the documentation they’re going to need. Help them get into the position to lock you in when both of you think the time is right. If you’re refinancing, if you get a rate improvement where the numbers are really advantageous to you, then it probably makes sense just to lock in and move forward with the savings as opposed to waiting for something that may never come and you may actually lose some ground.
How quickly will my loan application be processed?
Because of the low-interest rates, our industry is seeing a dramatic increase in demand and a major backlog. This includes the title companies, and especially the appraisers. The majority of lenders are going to prioritize purchase transactions over refinance transactions because there’s a contract in place and a definite timeline that has to occur legally. Currently, most lenders are locking rates for longer periods of time to have a cushion to process the transaction. The best thing you can do is be prepared, stay calm, and stay patient. And, wash your hands.
Is there anything related to COVID-19 that people should know as far as interest rates and mortgages?
There’s obviously going to be some disruption because the majority of back-office support is being moved to work remotely from their homes. But, hopefully, it’s minor. Just have patience because everyone’s working overtime. Our parent company is hiring multiple new underwriters, processors, funders, and all the people behind the scenes that help get the loan from start to finish. They’re working hard to get it done by your contract date if it’s a purchase transaction or before your lock expires if it’s a refinance.
Any final words of wisdom?
If you have a transaction in process or you’re shopping around, I think communication is the biggest thing you should be noticing, communication from the loan officer. Hopefully, your loan officer will give you a weekly update even if nothing’s going on just to check in and say, “Hey, nothing’s going on, but nothing’s going wrong. Everything’s in the works.” If they’re not getting back to you, then that could be a red flag and you need to find out why or need to move on. Make sure you’re working with people that you know and trust right now.