Amid the Coronavirus Spread, Fed Cuts Rates to 0%

The Fed cut benchmark rates to 0% — here’s what that means for mortgage rates

Most experts predicted the Federal Reserve would reduce the federal funds rate at its scheduled meeting this Tuesday, but the Fed pulled the trigger early, dropping its benchmark to 0% – 0.25% early Sunday evening. It’s the first time the funds rate has been this low since 2008 and the second time the Fed has cut rates this year.

Current low rates have already caused a boom in refinance activity and demand amongst home-buyers remains elevated, in spite of the short supply of homes for sale. As a result, lenders don’t need to give Americans much more incentive to apply for new home loans.

Last week, mortgage rates increased slightly, in part because some lenders had artificially raised rates to stem the number of people applying for home loans and give themselves time to work through the backlog of applications that accumulated as rates fell. Lenders will also face pressure to hedge with interest rates, since bond yields could increase from the time when a borrower locks in a rate until when they close the loan, which would make it harder to sell the loan on the secondary market. 

Those in the refinance market would be smart to lock in rates now, said Kapfidze, chief economist at LendingTree. “Most lenders will let you relock at the lower rate” when you close the loan, he said. (MarketWatch)

Update 3/18/20: Pricing will worsen by approximately 1/2 of a point. It’s the “dash to cash.” The common thread running through all facets of financial markets and the real economy is simple: a global cash crunch of epic proportions,” announced Quicken Loans Mortgage Services.

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