The Fed lowered their interest rate to 0% – why did interest rates actually go up?

In view of very recent developments nationally and internationally with COVID-19, it is safe to say that the world has turned upside down. Panic buying, social distancing and coronavirus have become everyday words. Beyond that, many businesses and government offices are closed for business. Talk of a recessive economy are gaining momentum.

As a result, the Fed has cut their interest rate even further in order to build confidence in society and as a result keep banks lending. However, the interest rate for home loans has actually ticked upward. In fact, just this month alone, interest rates went from an average of about 3.30% to nearly 3.75% (on a 30 year fixed loan). Many people are interested in a refinance or even purchase of a home because of how low interest rates are. So, why did rates go up?

Well, mortgage rates don’t necessarily follow the Feds interest rate always. They will adjust to a certain extent, however, they typically follow 10-year bond yields, such as the treasury note. The 10-year treasury note actually went up this month. This was due to the fact that a major stimulus package was approved in view of COVID-19, adding to the national debt and affecting the yield market.

However, rates will continue to fluctuate. Many people are applying for refinances right now or new loans and so banks and mortgage companies are back logged, affecting mortgage rates. The fed and other government agencies will most likely continue to implement new measures to help the economy, which will have an effect on this also.

While interest rates are still historically low, we can expect continued change due to market volatility. The quicker we see stability, the better the economy. The better the economy, the more confidence the consumer will have.

Contributed by Nicklin Property Management.