The Federal Reserve’s emergency rate cut of 50 basis points (0.5 percentage points) is good news for consumers looking to take out a mortgage, refinance an existing mortgage, or get a new auto loan.
On Tuesday the Fed announced that the growing concern surrounding coronavirus outbreak warranted the cut, which lowered the current target range to between 1% and 1.25%. The outbreak had over 92,000 confirmed cases worldwide, 3,131 deaths, and 48,190 recoveries as of Tuesday afternoon, according to Johns Hopkins.
Last week, average rates for 15- and 30-year fixed-rate mortgage 2.95% and 3.45%, respectively, the lowest the 30-year has been since 2016. The borrower-friendly environment already sparked a national conversation about whether it was a good time to finance or enter the housing market
According to Freddie Mac, mortgage applications have increased by 15% compared to a year ago.
Now with an emergency rate cut announced by Fed Chairman Jerome Powell, loans — both car and home — will likely get cheaper.
“With last week’s mortgage rates hovering just 14 basis points above all-time lows even before the large Fed rate cut, a new low in mortgage rates seems almost inevitable,” said Realtor.com’s chief economist Danielle Hale. “Lower rates are likely to drive refinances higher, and may entice home buyers out to shop as well. That’s certainly the Fed’s hope.”
This could even allow people who refinanced just six months ago to get another chance at refinancing again, TD Ameritrade chief market strategist J.J. Kinahan told Yahoo Finance.
“The real positive for the consumer right now is the fact that those who have car loans, mortgages should be able to – if they haven’t refinanced or even if they have refinanced in the last 6 to 8 months – may get one more chance to refinance gain and have more money in their pocket,” Kinahan said.
Low rates provide borrowers looking for mortgages a cheaper way to borrow (and ultimately spend) money; and spending is the goal of rate cuts to keep the economy running smoothly in the face of coronavirus fears.
Despite fears, a DataTrek note pointed out that loan delinquencies across mortgages, credit card, car, and other types of loans is low and that things are “in good shape.”
Hale added that home sales might be dampened despite favorable rates if people stay in and avoid contact with others — a necessary part of the home-buying process.
Bankrate’s senior economic analyst Mark Hamrick noted that though lower rates push down borrowing costs for consumers shopping for mortgages or a refinance, they don’t do much to calm the public in a health crisis — something that Powell noted himself as he announced the rate cuts.
-Ethan Wolff-Mann of Yahoo Money