We have seen that the Federal Reserve has made an emergency cut of its benchmark rate to nearly zero this past weekend. The Fed makes its decisions based on many factors, the most current is the economic impact of COVID-19. And although the fund’s rate is tied to mortgage rates indirectly, what we have seen is a small increase in the 30-year fixed rate instead of a cut. So, what does that mean for a homeowner who is considering refinancing?
We Simply Don’t Know What Rates Will Do
It’s hard to know in this environment what our California mortgage rates will do. Common sense would say that rates would decrease but common sense doesn’t always prevail in times like these. As always, it is important to shop for the best rates and to keep mindful of the current economic factors.
Today, mortgage rates are still extremely low. Over 2019, rate cuts offered opportunities for homeowners to refinance, the ones benefiting most with adjustable-rate mortgages. Because variable-rate mortgages more closely move with the federal funds rate as they are short-term rates, refinancing with an adjustable-rate mortgage may now see more rate advantages. But it’s important to consider the volatility in the economy right now and whether you want to take a chance with an adjustable rate.
Adjustable Rate Mortgages May Prove to Be Risky for Some Borrowers
These types of lending vehicles will track the Federal Reserve rate more closely than a fixed-rate mortgage, but they can pose a double-edged sword scenario for homeowners. When fed funds are reduced, it can be good news short term. But in today’s economic volatility, it could prove to be risky long-term.
Because the Federal Reserve’s measures are emergency measures, we can surmise that this will not be a long-term reality. For California mortgage borrowers who are looking to save money short-term with a 3/1 or 5/1 adjustable-rate mortgage, it’s important to weigh out
- Where the break-even point is to justify closing costs
- How long they intend to stay in the home and the potential of risk long-term.
Of course, lower rates are important when considering refinancing your home. But keeping volatility in mind, it’s important to understand the consequences and figuring out what’s best for you and your family. In contrast, today’s fixed-rate mortgages are still some of the lowest in history. They may track down with the federal funds rate eventually, but we have just seen the opposite. So, it’s hard to tell.
Get Professional Advice Before Making Any Decisions
If you are currently considering refinancing your mortgage in California, it’s important to get the advice of a skilled mortgage professional to help you make the right decision for your economic situation. Let us help guide you. Call our licensed mortgage professionals at (559) 540-2275 for experienced mortgage advice in this current landscape.