Rate drop equal re-fi? Not so fast
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feds, rate cuts, refinance March 18th, 2008Fixed and ARM mortgage rates don’t necessarily follow the Fed
Whenever the Federal Reserve lowers interest rates, the phone calls start pouring in for Sam Barnett, a Realtor in Charlotte.
The callers want to know: Does this mean it’s a good time to refinance?
And Barnett, 29, explains again and again: Despite what ads on the Internet or fliers in your mailbox might imply, the Federal Reserve’s actions don’t determine the interest rates on mortgages. In fact, the Fed’s actions don’t even have a consistent effect on mortgage rates. Case in point: When the Fed issued an emergency rate cut Jan. 22, fixed mortgage rates dropped a few 10ths of a percentage point for a few days, sparking a brief flurry of refinancing. But rate cuts the following week failed to have a similar effect. And if the Fed slashes rates again Tuesday, as is widely expected, rates on fixed mortgages could actually increase.
Maybe you know people who rushed to refinance after the first cuts of January: Charlotte-based LendingTree says it fielded more refinancing inquiries on Jan. 23 than on any other day in the company’s 12-year history. But don’t assume that you should try to do the same this week, especially if you have a fixed-rate mortgage. (Adjustable-rate mortgages, however, are affected more directly by the Federal Reserve. See box.)
Here’s why:
• Lenders are getting stricter about who qualifies for refinancing, since they’re nervous about being burned by defaulters. The credit history that got you your loan might not qualify you for a refinancing, cautioned Kristen Haynes of New Home Buyers Brokers in Charlotte.
Lee Tabor, owner of USMortgage Inc. in SouthPark, says that half the lenders she did business with a year ago will no longer accept loans from mortgage brokers. Those who still do are thoroughly scrutinizing would-be clients. For example, lenders previously might have asked for just a client’s W-2, Tabor said. “Now, I’m having lenders ask me for two years of tax returns” for some clients.
Tags: feds, rate cuts, refinance
