The Feds took a bold move yesterday and lowered interest rates to an all-time low of 0 -.25%. What does this mean to the consumer? When the Feds lower interest rates, Businesses, and Banks can borrower from the Feds at nearly no costs. These are short term loans to be paid back generally 90 to 180 days. This will not necessarily affect MORTGAGE interest rates but it will help. It will affect Home equity loans, Credit card interest rates, Automobile loans. Short term lending.
Mortgages are generally long term, 15 or 30 years. So mortgages interest rates do not see a direct ratio of decline when the Feds drop rates.
Below is an email we had sent to current clients on Saturday morning
As we are in the process of your Refinance or Purchase transaction, in an unprecedented move, interest rates jumped on Tuesday, March 10th with no early warning. The previous weeks’ rates were dropping to all-time lows, thus triggering your interest in re-positioning your mortgage or buying a home. Mortgage volumes across the country increased by over 425% in this 3-week period. The panic of the coronavirus drove the stock market down, thus driving interest rates down.
These factors have put a huge strain on banks and lenders across the country. Lenders use “Warehouse Lines” to obtain the money to fund your refinance or purchase of a new home. As millions of homeowners migrated to a refinance or purchase in the last 30 days, theses huge volumes will “ added strain” for the ability of these warehouse lines to fund mortgages. In an effort to deliver a promise to borrowers on a loan with a locked interest rate, lenders across the country have increased interest rates almost 1% overnight on March 10th, to stop the influx of mortgage applications.
Lenders are reserving a percentage of their warehouse credit lines to fund first, borrowers who purchased a home as the number one priority and refinances as secondary. As these locked loans are closed and funded, this will replenish these warehouse lines of cash liquidity.
The good news, as we could not take advantage of the historic declining rates?
Low rates are on the horizon. With the current global situation, the halting of travel, schools closing, and no vaccine in sight, this will impact the economy through the 3rd quarter of 2020.
Regarding your loan application. As we discussed, the best position it for us to continue FLOATING the interest rate until we see the relief on the lender warehouse lines of credit as we will then see interest rate relief as this country needs lower rates to drive the economy. If you are purchasing a home, you may be somewhat of a victim, of the higher rates if we are to close your loan within the next couple weeks
We ask you to be patient. On a refinance transaction, continue the process and get the loan in a position to close, with the exception of the interest rate lock. We watch the market. On a purchase transaction, communicate with us daily so we may assess interest rates hourly, to make a wise decision based on market indicators as we move forward.
Here is the Kiplinger report. We in the mortgage industry abide by and respect the advisors. We utilize their experience and insight into our industry. Please take a moment to review the report and pay attention to page 2. This insight is where we receive information and have followed for 18 years, assisting our clients in navigating these choppy waters. The report is full of economic data for you, to also have an understanding of the world economy, its effects on interest rate fluctuation and my mindset when we are discussing your short and long term housing goals.
We hope this lends some comfort, direction, and answers many of the questions you may have.
Again please consider thinking in a financial sense, not an emotional sense as we walk through this experience together.
Please call us with any concerns as my team is on top of moving your loan through the system, and we also guarantee not to make a move unless the cost vs the benefit creates an impactful value in meeting the objectives we had set forth in the beginning.
Contact me anytime, day or night. Please let me understand your thoughts.