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If you’ve been looking to refinance your existing mortgage or take out a new one after recent Fed action, you might notice that rates offered by many lenders haven’t fallen as you shop on comparison sites.
So, why is this happening?
Simply put, mortgage rates don’t necessarily move up and down with the benchmark interest rate set by the Federal Reserve — or even the 10-year Treasury yield, which, according to the Wall Street Journal, lenders generally use as a guide for setting mortgage rates. Lenders adjust their rates in response to the market. Many lenders have been overwhelmed by a surge in demand this month and are raising their rates in response.
Mortgage rates fell to an average of 3.29% for a 30-year fixed-rate loan after a Fed rate cut in early March. Falling rates then sparked a rush to refinance. This week, in response to growing coronavirus concerns, the Federal Reserve cut the federal funds rate to between 0% and 0.25%.
Normally, when rates drop, you might expect U.S. mortgage originations to go up, with consumers taking advantage of better rates. With the recent surge in mortgage applications, the Mortgage Bankers Association is projecting that U.S. mortgage originations will be up about 20% in 2020 from a year earlier, while mortgage refinances will be up almost 37% over the same period.
Sure, more applications usually means good business for lenders. But right now, lenders need to weigh the benefit of increased business against their ability to process the high volume of applications — and against the probability that the coronavirus could hurt home sales. Raising rates to deter applications is one way to control the influx as lenders feel out the current market.
So what are your options if you’re looking for a new mortgage or to refinance? We’ve got some tips below on how to navigate the current environment to lock in a rate that works for you.
Tips to find a good mortgage
While lenders and loan officers are dealing with an influx of demand, there are some things you can do to better your odds of getting a new mortgage or refinancing at a competitive rate. Check out these tips from Andy Taylor, general manager for Credit Karma’s mortgage platform.
- Call up your local credit union or neighborhood bank. Since a lot of national banks and direct-to-consumer lenders advertise online, they’ve seen higher demand from people shopping around than your local lenders, who may be more able to help you get a home loan right now. It may even be worth calling a national bank or direct-to-consumer lender to see if it can offer a better rate than it offers online.
- Find a reputable mortgage broker. Mortgage brokers are like personal shoppers, comparing rates across a wide network of lenders — called wholesale lenders — who don’t advertise to consumers directly and may have more capacity to connect you with the right loan.
- Keep checking sites for new mortgage rates. Rates are still showing up on sites like Credit Karma, but limited inventory means they won’t last long. Check early in the morning when lenders first post rates.
- Be patient. Although it’s hard to find a lender offering the kind of low rates we saw earlier this month, time is on your side as a consumer. It could take six to eight weeks for lenders to clear the backlog of applications, but rates are expected to stay low throughout the year. If you can wait it out — and are persistent — you might be able to connect with a lender and lock in a rate that works for you.
- If you’ve already applied for a mortgage, stay on top of your application status. Pay attention to when your rate lock expires. If your closing date is delayed, try talking to your lender about extending your rate lock.
A closing note
In the current environment of economic uncertainty, it’s easy to start feeling discouraged. When it comes to refinancing or applying for a new mortgage, it can help to look at the big picture and get some perspective.
Mortgage rates are still relatively low and have remained low since hitting their first major dip in 2012. If you cast a wide net, you may be able to find a lender with a rate that works for you. We hope this helps you figure out where to start.