Mortgage

Will mortgage charges fall once more this week after the Fed assembly?

Publisher's Note: This article was originally published on June 10, 2020 and updated on July 28, 2020 with the latest Fed forecasts

Don't wait for lower Fed mortgage rates

Mortgage rates have hit record lows five times this year. They are currently resting at or near the lowest level in 50 years.

This is thanks in part to the Fed, whose intervention in the mortgage market forced interest rates during the COVID pandemic and kept them low.

With the Fed already injecting capital into the mortgage market and keeping the key rate close to 0%, there is little it can do to further lower mortgage rates.

That means buyers and refinancers shouldn't wait for the Fed.

For those who are willing to buy or refinance, there aren't many reasons to freeze an interest rate.

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FOMC expects interest rates to remain stable this week

The CME Group's FedWatch tool states a 100% chance that the FOMC – the Fed's decision-making body – will not change its current target interest rate of 0 to 0.25% when it reaches this week.

Picture: CME Group FedWatch

In addition, the FOMC said at its last meeting that it intended to keep its base rate constant until 2021 or 2022.

Fed policy is unlikely to change until the United States makes real progress toward the economic recovery after the corona virus.

Although the FOMC does not set mortgage rates, mortgage buyers can expect historical interest rates to continue for some time due to the overall favorable environment.

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What to look for in this week's FOMC statement

As mentioned above, the Fed has no plans to change its target interest rate soon.

However, there is a possibility that the quantitative easing (QE) policy will be updated – the process by which the Federal Reserve buys mortgage-backed securities to keep borrowing costs low.

If the Fed decides to increase its mortgage buying program, it could potentially lower mortgage rates. QE has been a major driver of interest rate moves in the past few months.

After its last meeting, the FOMC announced that it would continue to buy mortgages at the current pace.

However, changing this policy is the only thing borrowers should look out for if they want to learn about possible interest rate movements.

Fed agrees: Interest rates don't rise as quickly

Admittedly, the reasons for the current low interest rate environment are no reason to be happy.

The Fed's interest rate policy is based on extremely uncertain economic times for the foreseeable future.

Coronavirus has devastated the US economy and led to record unemployment. It doesn't look much better worldwide.

However, the silver lining is a Fed that unanimously supports a Fed Funds rate close to 0%. The Fed does not control mortgage rates, but the group can certainly help them stay low.

In a rare sign of solidarity, each Fed member forecasted low interest rates until 2021, with only two dissenters saying rates would rise in 2022. Each dot in the image below represents a member of the Federal Reserve, hence the nickname for this graph, the "dot graph". ”

Federal Reserve

Typically, these points are somewhat distributed: some Feds forecast or even argue for a higher Fed rate in the future.

However, this graph shows a rare, almost general agreement that interest rates should remain low for some time.

Your next step as a mortgage buyer

As already mentioned, mortgage rates do not perfectly match the federal base rate. Mortgages could become more expensive even if the Fed uses its full strength to keep interest rates low.

With this argument, those who want to buy or refinance a home shouldn't wait. Interest rates are currently near 50-year lows and it will be difficult for them to get lower.

However, if you are in the market to buy or refine in the coming years, you should be encouraged.

Many people are working to improve their creditworthiness, advance their careers or set a budget. In these cases, you can probably breathe easy. Low rates will likely be a round in a year or two when they're done.

Regardless of your home finance schedule, today's Federal Reserve meeting should brighten your day.

It appears that mortgage rates will continue their record streak.

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