Clients are Asking…Why Have Rates Not Gone Down Today?

As you may know the Federal Reserve lowered the Fed Fund by .5% today and you may be wondering how this will affect interest rates you are seeing for your home mortgage. I hope the following sheds some light on the subject.

 Typically, a Fed cut has no direct effect on mortgage rates as the Fed Fund (which they lowered) is the overnight lending rate, banks charge to each other when they have a surplus of reserves (deposits) required by the Federal Reserve. Banks have to keep a certain amount of reserves in relation to their deposits and so when they get more than what they need, they lend out the surplus to other banks that are short in reserves using the Fed Fund Rate. So what does this mean to you the home owner?

A fed cut like today’s, lowers rates on bank products like car loans, business loans, credit card rates, home equity rates, etc. Mortgage loans, however are influenced by Fannie Mae and Freddie Mac, Portfolio Lenders and of course Mortgage Backed Securities and Bonds. In short, when the Dow or Nasdaq starts falling, investors put their money into MBS’s and Bonds causing mortgage rates to go lower. When the stock market corrects and starts going back up, these investors quickly move their money back over to equities and mortgage rates we see, typically go up.

Now, the reason we have seen rates drop in the past week or so is due to uncertainty because of the Corona Virus and the impact it will have on not only people around the globe but also industry. Example, if Apple can’t manufacture cell phones in China due to impact of the Corona Virus, their sales and revenue will significantly drop negatively affecting their stock price and stock market as seen in the last week or so. The Federal Reserve is worried that this will happen to other industries such as travel, manufacturing, tech, etc so they are being proactive in lowering the Federal Fund Rate. Eventually this move will filter down to interest rates for home loans, but in the near term it will not as seen last year with 3 Fed Fund drops (last year) only resulting a slight reduction of mortgage rates.

If rates do drop further than they are now (in the mid to low 3’s for owner occupied purchases and rate & term refinances), I will update you.

Hope you have a good week and Stay Healthy!

Best Regards,

 Rob McCarthy

Senior Mortgage Advisor

www.101Loan.com (Over 200 5 Star Reviews on Yelp)

408-377-4123 o 650-465-8957 c  408-608-1921 f

101 Loan - 6020 Hellyer Ave #150, San Jose, CA 95138

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