I've been getting questions from you all about interest rates. What's going on now and what could rates be doing next year? So this month, I've asked LeAnne Merciez of Universal Lending for her response on the recent rate cut. Here's what she had to say:
The Feds cut rates by .25%.
What does this mean?
This past month the Federal Reserve (the Fed) cut the Fed Funds Rate (FFR) by .25% to 2.25%, the first rate cut in 10 years. This is the rate at which banks lend to other financial institutions. It affects short-term rates on things like home-equity loans, credit cards, and auto loans. And oh, by the way, savings deposit rates may likely decline as well.
But, the Fed doesn't control long-term rates such as mortgage rates.
Many consumers are wondering why home loan rates haven't declined by .25% in tandem with the Fed action. When the Fed cuts rates, it is doing so to fuel economic growth and/or allow inflation to rise, and both can be bad for long-term rates like mortgage rates. Additionally, stocks love Fed rate cuts and typically move up, which can also mean bonds go down.
The FFR has no effect whatsoever on mortgage rates. Mortgage rates are instead impacted by a number of factors that include the strength of the economy, inflation, geo-political events, and the state of the housing markets. Since mortgage rates are strongly influenced by the bond market, when bonds go down, rates can go up. The opposite is also true.
Another driver of long-term rates is uncertainty, and over the last month we've received a good dose of that! ncluded in this was a surprise announcement that the U.S. will institute a fresh 10% tariff on $300B worth of Chinese goods. In response that that announcement, home loan rates touched the lowest levels in three years. As uncertain as this trade story is and seemingly unfixable at the moment, all it takes is just one headline or tweet to change the sentiment and start to see a fix...in which case, home loan rates could move higher quickly as Mortgage Bond pricing loss would be swift.
Bottom line, mortgage rates are at a three-year low. Timing couldn't be much better to lock in on a purchase or refinance loan.
LeAnne Merciez
Loan Officer
Universal Lending
License: CO:100039689 | NMLS: 886319
More questions? You can contact LeAnne at:
Direct:(303) 759-7341