Why You Cannot Get 0% Mortgage (Fed Rate Cut Doesn’t Apply to You)

Sunday, March 15, 2020, the Federal Reserve Board cut rates to 0% for short term loans. A short-term loan could be bank-to-bank for as little as one day. They could be short-term business loans. Could it be your mortgage? Let’s think about that:

Would you like to refinance your $350,000 mortgage at 0% for one day and be obligated to pay it back in full tomorrow? Or next week? Or next month? No, of course not. A mortgage is a long-term loan. This rate cut does not apply.

However if you have a home equity line of credit with an adjustable rate, then you can expect to enjoy a low (not zero) interest rate.

Why Mortgage Rates are Up, Not Down

In the last 10 days, mortgage interest rates have risen dramatically. How odd, right? Looking at the market, there is no reason a rate should have spiked from 3.25% to 4.25% in a matter of days. Obviously, something else is going on.

With mortgage rates at historic lows, all lenders have been deluged with a massive number of refinance applications. Processors and underwriters are working 60+ hour weeks. Loan officers are pitching in doing processing work. Everyone in the mortgage business is maxed out. I’ll explain it this way.

Let’s say you had a food truck. You sold tacos at such a cheap price, that the line for dinner was a mile long. You saw that it would take until midnight to serve everyone a taco dinner. Would you continue to advertise 50 cent tacos and bid more people to get in line? No, that would ruin your reputation, because you can’t handle all the customers you have already.

Similarly, lenders have had to stop the avalanche of refi applications. This was accomplished by raising rates–not so much that people still couldn’t buy a home, but enough that it wouldn’t make sense for many to refinance.

We Expect Rates to Get Better Again

If you lost out on the opportunity to get that super low rate, then get your application in with all paperwork called for. Then when the current book of business closes and lenders can accept more refinance business, you will be ready to lock and go!

The second wave of refinances will happen–and it could be as short as a one-day window to lock before the pipelines are full again and rates are artificially raised.

Will we see rates at another historic low? I don’t know. My advice is to get ready and when you see a low rate that makes sense, lock and don’t look back. People who get too greedy, expecting an interest rate that cannot and will not happen are the people who lose out altogether.

Keep in touch with your mortgage broker. A broker can shop lenders for you to find you the best loan program at the best pricing he or she has available.

And now I need to tell you I am licensed to do mortgage loans in California and Washington states. NMLS license 1284134. Thanks for reading and stay healthy and safe.