April 2, 2020 – Daily Update – 0% Mortgage Rates – Fed Rate Cut!!
I hope everyone is doing well and is safe and healthy and learning to cope with this global crisis for the next few weeks/months.
I have been flooded these last few days with emails, texts and calls about the Fed reducing the Fed Funds Rate to zero and everyone asking if I can reduce their mortgage rates to near zero! Trust me, I wish I could, and I am hoping the subject would get you to open and read my email 🙂
It is very important to understand the interplay between both the Feds Fund Rate and mortgage rates. It is very easy in today’s world to listen to pundits on Facebook, and news clips that glamorize and highlight recent news in a vacuum without explaining how different matrices interact with each other. As a Mortgage Solutions Specialist, it is my job to EDUCATE my clients and help them manage their mortgage debt. Just like a Financial Planner manages your investment accounts, I manage mortgage debt. The hallmark of a great Mortgage Solutions Specialist, and I pride myself in being one, is one who educates his/her client so the parties can come together and make an educated decision on how to manage the mortgage debt to ensure the client and his/her family are properly protected.
What is the Feds Fund Rate? The fed funds rate is the prescribed rate at which banks lend money to each other on an overnight basis. Basically it’s the fee that banks charge each other to borrower money overnight. When the fed funds rate is low, the Fed is attempting to promote economic growth. The Fed Funds Rate best correlates to the Prime Rate, which is the basis most banks use for business loans, and consumer credit cards.
Why does the Fed want to promote economic growth? If any of you have retirement accounts or investment accounts you have been a witness to your portfolio shrinking over the past month or so due to the fears of the Coronavirus (COVID-19) and the erratic sell off on Wall Street. The Fed is trying to calm the markets by reducing the Feds Fund Rate and promote stability so the stock market stops its hemorrhage and hopefully prevent a recession. The Federal Government and the Fed did the same thing between 2008-2015 and we saw all the industries that were hurting at the time (financial, automobile, travel and housing) start to recover by 2012.
Has the Fed Funds Rates been Zero Before? YES 2008-2015…
What were mortgage rates between 2008-2015?? Low 3% to mid 5s% without paying discount fees.
Pay attention to how government intervention affects the stock market. If history serves accurately every time the government has injected capital into the markets and reduced the Fed Funds Rate to zero percent to stabilize the stock market, the stock market eventually STOPPED it’s spiraling and created new highs.
In conclusion if you locked in your mortgage over the past two months you are getting an amazing rate. News in a vacuum is dangerous. Facts and data matter…..the facts are above.
The ZERO percent Fed Fund rate is not going to give you a 0% mortgage or 1% mortgage rate and depending on market conditions, rates may actually increase!
When I first got into the real estate/mortgage business years ago, an old colleague of mine used to always tell me “Don’t try to catch a falling knife”. He meant there was real risk when I would try to time the market for my clients to get them the lowest possible rate and if my timing was off, I would lose my client and they would lose whatever rate they had at the time of initial lock-in. So, if you are waiting for zero percent mortgage rates, you are waiting to catch a falling knife and you’re losing on a real savings opportunity that exists today.
I hope this helps explain the uncharted environment we find ourselves in today when it comes to mortgage debt.
I will do my best and continue to communicate as much as I can as I learn more.