Last night when the news broke that the Federal Reserve would slash interest rates to zero in an effort to bolster the economy and get financial markets running smoothly again (the most drastic economic measures that have been taken since the 2008 financial crisis) I’ll admit one of my first thoughts was pretty selfish: Does this mean it’s time to refinance my mortgage? And what kind of interest rate could I really get?
My husband and I bought our first place last year (I wrote about the experience here, all about how signing a 30-year, $250,000 mortgage felt so much more serious than any other commitment I’d ever made before) and our current mortgage rate stands at around 4%. I’d been considering looking into refinancing for a few months now, but hadn’t taken the next steps. This morning I reached out to one of my favorite sources Greg McBride, CFA and chief financial analyst at Bankrate.com to get his expertise.
The short answer: No, you can’t get a 0% mortgage. Rats.
McBride elaborated: “Even the government currently pays 1.4% when they want to borrow money for 30 years — and they have the luxury of being able to print money to pay it back.” If the best rate the government can get is 1.4%, we individual homeowners should expect to pay a good bit more than that.
So who qualifies for the 0% rate? “The rate the Federal Reserve cut to near 0% is a rate banks pay to borrow from each other – but overnight, not for 30 years. This rate serves as a basis for the rates on other loans and savings products,” McBride says.
With that said, mortgage rates have fallen substantially from where they were one year ago (the average 30-year fixed mortgage rate is currently 3.77%), and refinancing a mortgage is the single-biggest way most households can benefit from lower rates. “Cutting a 4.5% rate to 3.5% can shave $100, $150, or even $200 off monthly payments depending on the size of your loan,” McBride says. “But lenders have been inundated with applications, and there is a traffic jam to get on the mortgage refinancing highway. This will ease with time and mortgage rates are poised to remain low throughout 2020.”
If you are considering refinancing, just hold off a bit – “Waiting until the initial wave of refinancing applications work their way through the system should allow rates to normalize, and they’ll do so at levels near-historic lows,” says McBride.
Getting a deal on my mortgage would have been nice, but right now, like most people, it’s far from my greatest concern. We’re living in unprecedented times — never before has a virus like COVID-19 disrupted the world economy in such a way. Like everyone, we’re monitoring the situation as it evolves. And we’ve got you covered. Here’s a look at some of the stories the HerMoney team has whipped up over the last couple of weeks.
More from the HerMoney team:
- Jean lays out the questions you need to ask before you make any changes to your portfolio.
- Kathryn and Becca put together a list of frequently asked questions from our readers, and we checked in with experts to tackle them one by one.
- Dori dishes on what a recession really is, and how it will impact your finances.
- Dayana deconstructs the sharp market movements we’re experiencing and puts crashes, dips, recessions and corrections in perspective by showing how long they typically last.
- Beth explains how your investment goals influence how you handle sudden stock market moves.
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