How the Fed Rate Cuts Affect Mortgage Rates

With all the hits to the market with the COVID-19 pandemic, the Federal Reserve (Fed) issued this emergency rate cut to try to maintain economic stability in the US. Essentially what they’ve done is lowered rates for banks and credit unions to borrow money from the Federal Government.

How Does this Impact You?

First of all, let’s clarify that Fed rates aren’t the same as consumer rates, but they do have a direct impact on your rates.

The following are financial accounts tied to FED rates:

  • Credit Cards
  • Home Equity Lines of Credit
  • Auto Loans
  • Savings Account & CD Dividends

What About Mortgage Rates?

Mortgage rates are impacted by multiple financial factors. Therefore, changes to Federal Reserve rates and the 10-year Treasury yield do not cause any immediate change.

With rates as low as they’ve been, lender capacity and overall market risk can play a huge role in available mortgage rates. Even before COVID-19 started to impact the economy, these historically-low mortgages rates had been steadily climbing back up. The recent Fed Rate cut, coupled with a number of other factors, does indicate that we will eventually see rates go down in the future, however it may not happen immediately due to market volatility and capacity concerns. That said, it is advised to make use of these low rates if it makes sense for you financially.

Summary

Overall, rates are still historically low. If you’ve recently started (or completed) a purchase or refinance, you likely won’t see a dramatically lower interest rate from what you already have. If you’re in the process of buying or refinancing a house, it’s still a great time to do so. Rates may go down in the future, but it is hard to determine exactly when or how substantial that change may be. As with any economic prediction, this is based on a snapshot of current conditions, other factors may arise in the interim that may impact rates positively or negatively.

Every individual scenario is unique. If you have questions about purchasing or refinancing a home, talk to one of our experts.