It Might be the Best Time to Refinance. Seriously.

Let’s say that around the first of this month you checked mortgage rates to see if a refinance was in your future. Rates have been on a steady decline so far this year so it’s no wonder that you did make a quick check. And rates have fallen to the point in early March that it might very well have been a good time. But today, it might be the best time ever. Things have changed in just a couple of weeks.

One thing you may have already read about is what the Fed did. Interestingly, the Fed made a move over the weekend, Sunday to be specific, lowering the Federal Funds rate to near zero. Combine that move with the 0.50 percent reduction March 3 and that’s where we are today…near zero.  At the same time, the latest introduction of Quantitative Easing, or QE, came into play with the Fed repurchasing around $700 billion worth of mortgage bonds and other mortgage-backed securities with more purchases to come. This of course is the Fed’s attempt to jump start a rather sluggish economy and given current events that’s the choices the Fed has right now. What’s also interesting is the timing. Historically, Fed moves come every six weeks or so at the FOMC meetings. These most recent moves have been made outside formal meetings.

Remember, you’ve read here before that Fed actions and the cost of money don’t directly affect your everyday 30 year fixed rate conforming loan. What Fed actions do however is provide some sort of guidance to investors on where the economy might be heading. In uncertain times, investors don’t like to have all, or most, of their financial eggs in one basket. The stock market has been in correction mode for the last several weeks. The result is a transfer of assets into the safety of bonds and out of a fragile stock market. The result might not be that good for your 401(k) right now but it’s certainly good for mortgage rates. How so?

As of today, the 30 year mortgage bond has fallen by 300 basis points just this month. 100 basis points typically results in a reduction of 0.25% on a 30 year note. A 300 point reduction would then yield a drop of 0.75%. I’ll say that again…0.75%. This is why it might be the best time to refinance ever.

Over the past couple of years, mortgage rates have remained in a relatively tight range. For example, Freddie Mac’s most recent mortgage rate survey released March 12 shows the average rate at 3.36 percent with 0.7 discount points while one year ago the rate was closer to 4.31. Understand that these are national averages, when we quote rates to you, the rate quote is based upon different factors such as loan amount compared to value, credit score and occupancy. Freddie Mac’s averages are going to be higher than what we have.

I’m a mortgage broker which means I have access to wholesale rates from multiple lenders. I can almost guarantee you that anything Freddie quotes, I’ll be better on any given day. And in years of experience, I can confidently say that if you’ve been thinking about refinancing your current note to get a lower rate or to change loan terms to save on interest, rates technically cannot go much lower. The Fed can’t cut rates any lower than they currently have. There’s little ammunition for the Fed. And investors continue buying mortgage bonds.

These bond purchases drive up the price due to the demand and because of the mechanics of bonds in general, when the price goes up, the yield goes down. That yield is equated to interest rates. And again, based upon my years of experience, when this news gets out to the general public there will be more and more refinance applications being submitted. This decreases a lender’s capacity and naturally it will take a bit longer to close a loan due to the increase in volume.

Even if you checked mortgage rates just a couple of weeks ago, it’s time to check again. And hey, rates for refinances are essentially the same for purchases, too. If you’ve been sitting on the fence, it might be time to go ahead jump off.