In an attempt to stabilize the economy in response to the coronavirus pandemic, the Federal Reserve on Sunday decided to buy $200 billion of mortgage-backed bonds, a move that should stabilize and likely lower mortgage rates. The central bank also reduced rates to zero to 0.25%. Both of these moves are part of a larger $700 billion “quantitative easing” program in response to the crisis. This is the largest emergency reduction in the Fed’s more than 100-year history.
Mortgage bankers were flooded with refinance applications the first week of March 2020 when mortgage rates fell to record lows. When lenders got overwhelmed, investors moved away from mortgage-backed bonds, which caused rates to go back up to rates similar to those seen in January.
It is expected that the fed rate cut will bring mortgage rates back down again in the coming weeks.
With the anticipated hardships facing many people that may temporarily be unemployed, these lower rates should help by lowering monthly payments and accessing equity to replace lost wages.
Traditionally, the spring market is the strongest time for homebuying. It is uncertain how this will affect potential homebuyers. If homebuyers are in quarantine and home sellers are not comfortable having strangers in their homes, the purchase market will suffer in the short-term but as they say the show must go on. The spring market will now be postponed to the summer! The rates should still be super low. The benefit to current homeowners from the Fed’s action is much more immediate.
Homeowners facing potential wage loss should consider a refinance for several reasons. As listed above, a lower rate means a lower payment, taking cash out could give you money during these uncertain times and your first mortgage payment is due a month after closing in effect allowing you to skip a payment.
In today’s market, a refinance can be done online using a digital application. If this sounds like it makes sense for you and your family, contact us today.