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So, if the Fed Lowered Rates to ‘Near Zero,’ Why Isn’t My Rate Lower?


On March 15th, just four days after the World Health Organization declared coronavirus (COVID-19) a pandemic, the central bank cut rates by a full percentage point to “near-zero” in an effort to bolster the U.S. economy.

Surprisingly to many consumers, mortgage rates haven’t followed suit. In fact, the week of March 16th, rates actually increased to 3.65%, the highest level since mid-February, according to Freddie Mac. Since that week, mortgage interest rates have been very volatile – often increasing and decreasing multiple times each day.

Why the Uptick?

With lower interest rates, refinancing has become an attractive option for many homeowners. This drives up demand for refinancing.

However, the timing couldn’t have been worse. Efforts to slow the spread of the coronavirus, including some lenders closing their offices and shifting staff to remote work – or worse, laying them off – made it more difficult to keep up with demand. As refinance applications piled up, investors raised interest rates in response to the increased demand.

Uncertainty has also caused an increase in mortgage interest rates. As the stock market has had drastic swings, many large banks and mortgage investors have moved their investments to cash. This has caused an increase in mortgage interest rates to make mortgage-backed securities more attractive to investors.

But there is still a bright side. “Refinance activity remains very high,” MBA's Associate Vice President of Economic and Industry Forecasting Joel Kan explained in a press release. “Excluding the spike [in March], the index remained at its highest level since October 2012, and refinancing accounted for almost 75% of all applications."

What Lies Ahead

According to Kan, the Federal Reserve's rate cut and other monetary policy measures to help the economy should help to bring down mortgage rates. But don’t expect them to plummet to the Fed's new short-term rates – between 0% and 0.25%. Instead, mortgage rates are likely to drop from about 4% to the mid- to low-3% range in the coming weeks, he said.

That could be good news for homebuyers. “You’ll be able to tour listings online and use a real estate professional to arrange a private showing,” said Robert Greenbaum, Chief Sales Officer at AAFMAA Mortgage Services LLC (AMS). There will be less competition, and sellers may be motivated to lower their price or offer concessions for painting or new carpeting, for example.

For those hoping to refinance, the timing is equally good. “A lower rate could save you hundreds of dollars a month,” said Greenbaum. You can often start the process online, and remember you don’t have to use your original lender. Any lender can provide you with a quote on the rate and other loan terms based on a quick review of your credit and situation.

This is a good time to keep an eye on interest rates to see if it might be a good time to refinance or purchase a new home,” Greenbaum advised. It’s a good idea to track interest rates daily and check with your lender, he added. If you find a rate that is attractive, try to lock it in as soon as possible.

We’re Here to Help

Due to the recent volatility in the financial markets due to the coronavirus and government actions, mortgage interest rates are experiencing significant volatility every day. AMS remains focused on helping our Members and prospective Members get the best mortgage and rates available. Therefore, please contact us directly to obtain current rates, offers, and terms.

Call us at 703-349-0257 or use our online form to contact us today. One of our experienced, licensed Military Mortgage Advisors will inform you about current rates and provide additional details. We look forward to helping you.