Real Estate Tips: The Truth About 0% Mortgage Rates

While I was hosting an open house this past Sunday, I was shocked to see an article announcing that the Federal Reserve lowered interest rates to 0%. How is this possible? I also was excited to share with my clients who already owned homes in the hopes that they could refinance and get a better rate. After further investigation, however, the 0% rate is not what it seems. Assuming others may have the same confusion as me, I decided to ask Greg Parker a top Mortgage Consultant from Prosperity Home Mortgage, LLC. See below answers to some frequently asked questions.

Photo by Adeolu Eletu on Unsplash

1. What does it mean when they say, “the Federal Reserve slashes interest rates to zero”?

   Unfortunately for current home buyers, it’s not as it seems as they’re not referring to mortgage rates. Wamp wamp! What they are referring to is interest rates on short term loans such as home equity lines of credit, student loans, car loans or credit cards. The nitty gritty of it is that mortgage rates (long term loans) are tied to the 10 year Treasury Yield, not the Federal Funds Rate, so this change will not likely impact current rates.

2. How are the current mortgage rates?

   According to Greg, who has over 20 years experience in the industry, says that he has never seen such a volatile market. Due to COVID-19, there are a lot of unknowns in our economy, and this will impact where rates are at. One day they’re down, and one day they’re up. All in all, they are still extremely low at the moment, but who knows how long it will last.

   Due to the rates being considerably low, “banks have been slammed beyond their capacity, and are not able to keep up with the volume” according to Greg. Generally, the mortgage rate industry manages roughly $1.2 trillion dollars annually, and last month alone they experienced upwards of $2 trillion dollars in business! Thus, as you can imagine, there is a huge strain on resources so the underwriters, funders, escrow, and title teams are at max capacity. I highly advise during times like these to work directly with a lender , such as Greg to ensure you receive the best rate. If you check the current rates listed on bank websites they are considerably high, as it’s almost as if they’re trying to drive business away, since they don’t have the capacity to handle.

3. What about refinancing my house?

   It depends on your specific circumstances. If this is something you’re interested in exploring, connect with Greg as he’ll be offering a free home analysis to determine if a refinance makes sense for you.

4. What are current refinance rates?

   Right now, Wells Fargo is quoting refi rates at 4.875% for a 30 Year Fixed Rate due to the reasons noted above regarding capacity (see ‘How are current mortgage rates’). These rates are higher than the standard refinance of the current market which are closer to 3.5% to 3.5%. If you work directly with a lender vs. just contacting a bank, you’ll likely receive better rates on your refinance.

5. Is there such a thing as a 0% loan?

   The way it works is the bank borrows money in order to lend it, and then makes money off the difference between the rate they receive versus the one they give you. Thus, they cannot offer loans at 0% or they wouldn’t be making a return. It seems simple, but the headlines ‘0% interest rates’ can make it confusing.

   Have more questions? Le’ts connect, I’d be happy to answer or put you in touch with Greg Parker for support.