What the Fed's 2020 Emergency Rate Cut Means for Mortgage Rates

On March 15, the Federal Reserve cut the prime rate to nearly 0%. The prime rate is the interest rate banks use to lend money to each other, and while this doesn’t directly affect mortgage rates here’s what it does mean: 

When the Federal Reserve lowers this rate, you’ll see the lower rate reflected in your shorter-term borrowing like: 

  • car loans 
  • credit cards 
  • home equity lines of credit 

Long–term borrowing—such as mortgage rates—generally do not follow the prime rate. Mortgage rates typically follow the 10-year treasury rate, but because of the unprecedented impact COVID-19 is having on the market these rates are not following the 10-year treasury as usual.  

There has been a flood of refinances in previous weeks due to historically low mortgage rates. With the banks and brokers that act as intermediaries struggling to sell mortgage back securities, rates have pushed slightly higher. The Federal Reserve announced that they are purchasing $200 billion in mortgage-backed securities, which may have a beneficial impact on mortgage rates.  

So, what does this mean for you? If you haven’t done so already, reach out to your lender to discuss your options. Lower rates aren’t immediate or guaranteed, but in making sure your lender has what they need from you to lock in your desired rate is key to proper planning.

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