Lately I have heard many advertisements by lenders to ‘get approved now for the next rate cut’. HOGWASH!!! The interest rates that the Federal Reserve cuts on a regular basis are short term interest rates, 30 days, not 30 years. The interest rates that the mortgage market is guided by are the long term bond rates, which are based on the long term outlook of the economy.
If there is any affect on mortgage rates by a short term interest rate cut, it will be in the opposite direction than the cut. The short term rate is reduced in order to stimulate the long term effects of spending and the economy.
In other words, there really is very little correlation between the Federal Reserve cutting short term interest rates, and the rates in the refinance mortgage world.
So what does that mean to you when looking for a refinance mortgage loan? Weill it still can mean that the refinance mortgage rates are coming down. The short term indicators could show that people aren’t spending like they were and trying to save more. The refinance mortgage expands and contracts with the spending. If mortgages are not being applied for, either refinance mortgage loans, or new loans, banks will sometimes squeeze their margins in order to increase volume - that is where you benefit.
There is one caveat to this relationship. Adjustable rate mortgages are designed to capture the changes in the short term market. You will tend to see the adjustable refinance mortgages move more in line with the short term lending rate because of the very nature of the loan - and that is it can be adjusted as rates go up. Over the life of the loan, adjustable rate mortgages are worth more to banks. That holds true as long as people are still able to make their adjusted mortgage payments. In today’s world, many can’t, and you either see people refinancing to a fixed rate, or defaulting on the loan if a fixed rate mortgage cannot be obtained, for whatever reason.
All in all, no one can predict where rates are headed. But if you keep your eyes open and talk to mortgage brokers, look for trends, parallels, and links between indicators, you may be able to maximize your benefit when looking for a refinance mortgage loan.