There has been significant buzz recently around the anticipation of Federal Reserve rate cuts. Most people expect the cuts to result in an immediate mortgage interest rate reduction. However the truth is that a decrease in mortgage interest rates can take time and sometimes not happen at all. In fact, we have seen rates increase since the last cuts.
Fed Rate Cuts: A Mortgage Myth
There was a great anticipation over the Federal Reserve’s decision to cut rates. It is understandably assumed that the cut will lead to lower mortgage rates. Unfortunately the relationship between mortgage interest rates and Fed cuts is not immediate. Mortgage rates are influenced by a variety of factors. Investor sentiment, inflation expectations and the overall economic outlook all play a roll in current mortgage rates.
When the Fed cuts rates it actually lowers the borrowing costs for banks. When their costs are cut it can be passed down to consumers in the form of lower rates. However because banks are always looking at market conditions and anticipating rate movement, there are instances where the Fed can cut the rate but the banks had already adjusted rates to anticipate the cut. If the cut ends up being smaller than expected this could result in a rate increase even though the Feds actually cut the rate.
The risk associated with lending can also play a significant role in the movement of interest rates. If the market believes there is an increased risk in lending then mortgage rates may not drop even when the Fed cuts the rate.
Mortgage Rate Cut Assumptions
Recent media coverage of interest rates led consumers to expect that the Fed cutting the rate would immediately be reflected in decreased mortgage interest rates. The desire to follow media advice and wait for the Fed cut did not benefit some consumers.
When you are planning a home purchase or a refinance it is important to choose a lender who goes the extra mile to help you navigate not only the local real estate market but also market trends that can impact interest rates.
There is a lot of pressure put on interest rates for good reason. However if you are trying to buy a home or refinance to start a project, waiting for the perfect rate can delay your goals and it’s important to remember that you can always refinance again in the future or pay extra against the mortgage to reduce the interest that is paid over the lifetime of the loan. The Legacy Mortgage team can help you weigh your mortgage options and decipher how current rates will impact your loan.
The Legacy Mortgage team collectively boasts over a 135 years of industry experience and is well versed in a variety of loan programs including fixed mortgages, ARMs, VA loans, FHA, first time homebuyer and more! We have the privilege of partnering with the best local agents, appraisers and attorneys the Upper Valley has to offer. When you work with Legacy Mortgage you are working with the best local professionals from beginning to end. Reach out to the Legacy Mortgage team to get the loan process started. Call us today, 603-643-7400.