Why the Fed’s Rate Cut Does Not Mean 0% Mortgage Rates
Posted On March 24, 2020
Last Sunday March 15th, the Federal Reserve cut the Federal Funds rate to a range of zero to 0.25%. The federal funds rate is the interest rate at which banks lend money to other banks. It will influence other types of interest rates, like mortgage rates, but they are not the same rate and it’s unlikely that Americans will see 0% mortgage rates at any time.
The emergency rate cut was in response to the global economic slowdown caused by coronavirus. Federal Reserve Chair Jerome Powell explained that the recent rate cut was a preemptive move to support he flow of credit to households and businesses during the economic slowdown caused by coronavirus uncertainty.
Mortgage rates are influenced by several factors including the demand for Mortgage Backed Securities (MBS). When banks and investors are buying fewer MBS’s, average mortgage rates will actually trend higher.
Your mortgage rate is also influenced by your unique financial profile and will vary from borrower to borrower.
When the Federal Reserve adjusts the Federal Funds rate, average mortgage rates may follow the trend, but there are many other factors involved when it comes to your specific mortgage rate. If you have any questions about mortgage rates for a new purchase or refinance, let me know.