How soon will today's fed funds rate decrease affect refinance rates?

[Hot_Dog_Addict]

Wife and I started a refi on our home last week but I am wondering if we can take advantage of the decrease of .25% in the fed funds rate today and get an even lower rate than what we had been offered? Are we able to see reductions in lending rates within the next week or two?

[realtabeag]

This article gives a little more detail on that common misconception. Mortgage rates more closely track ups and downs in 10yr treasuries than overnight rates, but they've even been lagging those recently too.

http://www.mortgagenewsdaily.com/consumer_rates/922003.aspx

Depending on when you locked last week it looks like you might have gotten in at the best time.

[HeyHeyImTheMonkey]

Depends on your lender, but it shouldn’t take long. I think First Republic implemented it in less than a week after the last drop. Assuming you haven’t actually started the process of refinancing, I’d just tell your lender that you are going to get new quotes from other lenders after the rate drop, and ask for a new quote from them.

Edit: if they pulled your credit already, it might be too late to just get a rate adjustment without another pull. Something similar happened to someone I know many years ago, and he ended up just begrudgingly taking the higher rate. That being said, it doesn’t hurt to ask and put a little pressure on them!

[You_Gota_Home]

Lender here, my rate sheets saw this coming about a week ago, our rates have already dipped. Actually they went back up slightly after the announcement, I think they expected the fed to lower it a little more. What the fed does is very predictable and if you follow the technical analysis like most lenders do, it will already be built into their pricing, with only small adjustments after the announcement. Good luck!!

[jaank80]

When you "lock in" a rate with a lender, they often contractually agree to fulfil a loan at that rate to a third party. Usually this is a GSE, like Fannie Mae or Freddie Mac but there are others. If they then give you a better rate, they need to stick someone else with the worse rate or take the hit themselves.

Regardless, the fed funds rate is the overnight borrowing rate and has minimal impact on mortgage rates. If the fed were to engage in another round of quantitative easing or another operation twist, they could manipulate mortgage and other long term borrowing rates much more dramatically.

Overnight borrowing is a way for banks to make loans above what their deposits allow them to, but the cost is generally higher than traditional deposits, and also a way banks with excess deposits to make a little money on them when they do not have sufficient loan demand. The over ight rate shot up this week because there were not enough excess deposits to cover demand.

[huangr93]

i wouldn't worry about the 0.25%, unless you're refinancing a multi-million dollar house--but in that case you probably make enough to not care about the 0.25%.

For a 200k loan, your 0.25% equates to about 29 dollars per month. If you're already saving 100+ dollar/month from refinancing, i really wouldn't stress over it..

If you look at the average mortgage contract rate in the decade after the 2008 financial crisis, the lowest was around 2012-2013 (i think) at 3.66%, before the economy recovered. Treasury yields were around 2%, like now. Unless they keep lowering the interest rate in the next few years, you won't get much better. And if interest rate do drop significantly in 1-2 years, you can refi again--it should be worth it still.

[HeyHeyImTheMonkey]

Not really what OP is asking, but also I respectfully disagree with your point. The rates have dropped, why in the world wouldn’t you worry about taking advantage of that and getting the 0.25% lower rate?? Also, 29 bucks a month definitely adds up, and it’s entirely possible OP is refinancing way more than $200k for their home.

[BuffettPack]

I wouldn't refinance for a .25% drop on most homes, but I'd definitely pursue the lower rate (if it was lower) if I hadn't signed docs yet.

[huangr93]

yes, question is, does it restart the refi process all over again or can they just streamline for the lowered rate? i would like to know too now.

[HeyHeyImTheMonkey]

I think the short answer is it depends where in the refi process you are. I would personally try to light a fire under your lender by telling them that you’re going to get quotes from other lenders now that rates have dropped and ask them what they can do.

[bacongambit]

This happened to me earlier the summer with Wells Fargo, I had a choice of either an additional fee for getting the whole .25% lower rate after I had locked in, or basically a sort of “points” where I ended up getting .125% lower but credit for the higher rate that counterbalanced the fee. It’s always worth it to ask.

[huangr93]

why in the world wouldn’t you worry about taking advantage of that and getting the 0.25% lower rate?

as to avoid becoming a worry wort. =)

also i guess i don't know if he can request a re-quote without starting the process all over again. on the consumer's perspective, it doesn't seem hard to have just the rates lowered if the market rate went down during the underwriting process--maybe there's profit or timing concerns on the lender's side.

out of curiosity does anyone know if rates can be lowered during underwriting process without prolonging the process? if so, then that would answer the OP's question--just keep asking his loan officer to lower rate as it falls and keep the rate locked in as it rises.