Curve

Trump: ‘Get our interest rates down to zero or less.’ What that means for mortgage rates

Tim Lucas
The Mortgage Reports editor

The lowest Fed rates ever?

Mortgage rates could be headed lower after mounting pressure on the Federal Reserve to make a historic rate cut.

If President Trump gets his way, the Fed would cut its rate to levels not seen since the last recession, or even lower.

That could bring mortgage rates to fresh records. Yes, rates could sink lower than the 3.31% thirty-year fixed achieved in 2012.

If you’re a home buyer or refinancing homeowner, you might want to participate in the upcoming mortgage rate submarine ride.

Check today's low rates. Start here. (Nov 13th, 2019)

Trump calls for Fed “boneheads” to cut rates below zero

Never has a sitting president been so active in interest rate policy.

Though the tactics are questionable, home buyers and refinance shoppers could be the beneficiaries of the erratic and often shocking comments from POTUS.

Trump even went so far as to call Fed chief Jerome Powell and the rest of the members “boneheads” because they were not cutting rates to zero or even lower.

The Fed is under unprecedented pressure to cut rates.

In the tweet, the president refers to “what other countries are doing already.” That’s in reference to the practice of issuing government bonds at negative interest rates as demonstrated by Germany, France, and Japan.

Surprisingly, investors are buying up these bonds even though they could lose money on the deal. Instead of collecting interest, they are paying for the privilege of keeping their money in a safe asset.

The question everyone is asking is whether negative rates will come to the U.S. If they do, what does that mean for the mortgage rate shopper?

Capture a historic rate now. (Nov 13th, 2019)

What would a negative Fed rate mean for mortgage rates?

The Fed isn’t going to cut rates to zero, or go negative, at its September 2019 meeting. However, there is an 89% chance of a 0.25% cut, according to the CME Group FedWatch tool.

That gets the most powerful financial body in the world, the Federal Reserve, closer to the zero-or-negative rate that Trump wants.

The relevant question for mortgage shoppers is, “What would a 0% Fed rate do to mortgage rates?”

The Fed rate doesn’t directly change consumer mortgage rates. However, its actions influence them.

The last time the Fed cut rates to near-zero levels was during the last recession. The result was lowest-ever mortgage rates for consumers.

The 30-year fixed-rate settled in the low 3s.

But rates could go even lower this time. Fixed mortgage rates are already in the mid-3s, according to Freddie Mac data. They could feasibly get sliced in half if the Fed reduces its federal funds rate to 0% or even -0.25%. (Germany’s bonds hit a record low of -0.31% in mid-August).

So sub-2% mortgage rates are not outside the realm of possibility. If you could get a 30-year fixed mortgage at 1.75%, would you refinance? No doubt that most of us would.

A Danish bank is already issuing 10-year fixed loans at -0.50% (yes, that’s a negative number). So any artificial “floor” under which mortgage rates “can’t drop” is more like a shadow.

If you’re in the market for a refinance or to buy a primary home, investment property, second home, or other property, 2019 and 2020 could be your once-per-lifetime opportunity.

The economy, for now, is solid. A good economy is rarely paired with low mortgage rates. The last time the economy was this strong, mortgage rates hovered around 6.5%, says Freddie Mac. But now we have this interesting phenomenon of both a healthy economy and ridiculously low rates.

Locking in a rate comes with great value even today

That begs the question, “Should I wait for lower rates?” Forecasts have a tendency to be wrong, and rates could shoot up unexpectedly.

Remember that expert predictions called for 5.5% rates by this late in 2019, yet rates are more like 3.5%. There’s no reason rates can’t reverse course unexpectedly.

If you find a good rate and can buy or refinance a home with cheap financing, it’s likely a good time. You can always “re-do” your mortgage later if rates drop again.

Ready to get lock in? Start below.

Verify your new rate (Nov 13th, 2019)