Mortgage rates are continuously changing based on daily trading activity in the mortgage backed securities market. Much in the way investors buy and sell stock in companies, investors are also buying and selling mortgage backed securities.
You likely heard about the recent rate cut by the Federal Reserve. Let’s explore how the Fed’s rate actions impact mortgage rates, directly or indirectly.
The Federal Reserve’s recent action was of particular importance as it confirmed the consensus opinion of an overall shift in monetary policy. The Fed cut the “Federal Funds Rate” which is the interest rate depository institutions, such as banks, charge each other for borrowing money overnight.
The Fed Funds Rate now stands at 2.25%. This was the first cut after nine straight increases. In December of 2008, the Fed lowered the rate to .25% which is the lowest possible and that is where it stayed until December of 2015 when we had our first increase since 2006. The Fed then steadily increased the rate with another raise in December of 2016, three more raises in 2017 and four more raises in 2018. The mortgage backed securities markets largely shrugged off the increase until 2018 when long term mortgage rates started to follow suit.
The recent cut was widely anticipated and mortgage rates have been dropping throughout 2019. As a result, mortgage rates are now within a whisker of their all-time record lows of late 2012. This, combined with rising property values, have created a historic opportunity for current homeowners to refinance. Millions of Americans can now lock in a lower fixed rate, reduce or eliminate mortgage insurance, use their home’s equity to consolidate higher interest rate debt or even reduce the term of their mortgage.
The good news: now is a great time to purchase a home or refinance your current mortgage!
What is the Fed Fund Rate and How does it impact your wallet
Movements in the Federal Funds Rate typically cause a domino effect that impact various lending products. The fed funds rate affects the prime rate, treasury bonds and various indices that lenders use for loans like credit cards, installment loans, home equity lines of credit (HELOCs) and adjustable rate mortgages (ARMs).
The Fed raises and lowers the fed funds rate in response to the economy. Lowering it can help stimulate the economy when the Fed feels indications show the economy slowing and raising it can help slow down inflation when the economy is expanding.
Any changes the Fed makes to the federal funds rate will not impact your current mortgage if you already have a Fixed Rate Mortgage. However, the recent drop in rates may certainly help if you're thinking about refinancing to lower your payments, reduce your term, consolidate debt or purchase a second home or investment property. The lower rates may also help if you are considering adding a fixed rate home equity loan to fund home improvements, education costs or other investments.
Adjustable-Rate Loans: ARMs and HELOCs
Adjustable Rate Mortgages and Home Equity Lines of Credit share a significant common trait. Both have interest rates that will likely fluctuate significantly over time. As such, both are tied more directly to the actions the Fed takes. A decrease or increase in the fed funds rate and the subsequent likely domino effect will impact the index your ARM or HELOC is tied to. When your rate is due for an adjustment, it is calculated based on a set formula. Most typically, your rate will be calculated based on the index (variable component) plus margin (fixed component). It is important to understand when your loan will be due for an adjustment and how your new rate will be calculated. You can find those terms in the final disclosures you received at settlement or closing.
What should you be doing?
If you currently have a fixed-rate mortgage, the changes in the fed fund rate won’t impact your mortgage payment. However, it is a great time to consult your trusted mortgage professional for an overall checkup to see if there is a benefit to be gained from refinancing.
If you currently have an ARM or HELOC loan, you may want to consult with your Mortgage Banker to see if now is the right time to lock in a Fixed Rate Mortgage.
Freddie Mac publishes an average of 30 year fixed rate mortgages (http://www.freddiemac.com/pmms/pmms_archives.html). The historic average for a 30 year fixed rate mortgage since 1971 is over 8%. The current average stands at 3.77%. Today’s rates represent a savings of over 50% against the historic average. Who doesn’t love 50% off?
A simple 5 minute phone call may prove to save you a fortune!
We're about to get bigger! News of our acquisition of Virginia Community Bank hit the press this morning and we're excited to celebrate it's addition to the BRB team! With any major news, we understand that our customers may have questions. Follow the link at the bottom of this article to review the official press release.
1. What does this mean for our customers?
Nothing will change for our customers except a more convenient offering. This simply means that BRB customers will have access to additional branch locations throughout Virginia and access to even better services.
2. Is Blue Ridge Bank changing?
No. We are remaining Blue Ridge Bank, while we're gaining the opportunity to share better banking with new communities. This move further moves us in our mission as an institution for the community:
"Our mission is to create financial value and opportunity for our shareholders, customers, employees, and communities by providing evolving, flexible, and customized solutions for the needs of our clients... and to have fun while doing it!"
We're a true community bank and that isn't changing! Our goal has always been to increase the financial well-being of our communities and show them a smarter way to bank.
3. Why Virginia Community Bank?
Virginia Community Bank successfully serviced Central Virginia since its establishment in 1976. Their staff and management team share our passion for financial well-being and our philosophy for better banking solutions. VCB has well-established deposit and loan portfolios which will help us better our position to compete in our growing markets.
4. What's with the logo change?
The Blue Ridge mountains are home to our namesake and we're not letting go of that. The new symbol is simply a dollar sign ($) that highlights our goal to grow wealth within the communities that we serve. We love our mountains, and always will. This new symbol foreshadows what is yet to come for Blue Ridge Bank and our customers!
Do you remember going to the local community bank as a child with your dad to cash a check? Your dad took you by the hand and you were met with a bank teller who went to high school with your uncle. The manager came out of his office to shake your dad's other hand and jokingly reminiscence about the trouble they got into as kids. The teller was explaining to your dad how the bank was about to order debit cards for the first time, even though the big bank down the street had offered debit cards for some time already. After collecting the cash, and a lollipop, your dad left the counter and waived to the familiar faces as you left to finish more errands.
THAT is how the big bank wants you to see your community bank. Simple. Friendly. Quaint. A bit behind the customers' needs. They're okay with the memory of your hometown bank and your familiar bankers... as long as you don't find out one thing: we're better.
Sure, big banks put locations and ATM's all over the globe to make it seem as if their services are the example of convenience. They pay a premium to make their online features look incredibly user-friendly and robust. The secret that the Wells Fargos of the banking industry do not want you to know is it's all smoke and mirrors.
Behind the multitude of product gimmicks and the promise of innovation, consumers and businesses are finding out that their community bank offers the same functionality and service. Only, we do it better.
Not only can your community bank offer you a competitive rewards-checking account, they can do so while offering you customized care. We can offer you a business credit card with perks and offer you a personal banker that will help you streamline your financial needs, improving your business' efficiency.
The next time you're on hold with the 'big guys' waiting for help on your statement or frantically needing your employees' payroll processed... just remember that Cindy at BRB would've already solved your issue and recommended the best seafood restaurant for your next beach trip. The same bank that sponsored your kid's little league, is the same bank that can give your company a robust commercial analysis account and purchase card program... all while saving you time and money.
So, yes, we do it better. The secret is out. We have big bank muscle and small bank care.... and Wells Fargo is nervous.
Finding the right lender to help your business is often met with much trial and error. Whether you’re looking for a new commercial banker or simply wanting to review your current relationship, these simple questions will help you determine the best fit.
Are you an expert in my market?
We see too many businesses grow frustrated because they are working with lending professionals that either lack experience within their market or struggle to keep up with current demands of their industry. Don’t be fooled! Your commercial banker is your company’s partner and should be prepared to answer this question.
What is the average size loan you work on?
The answer to this question is telling for a few reasons. Is this lender experienced enough to handle the type of financing your company needs? The type of performance and attention you would expect from your banker will vary dependent upon if your company needs a bit more working capital or is undergoing a much larger expansion.
Why do you want my business?
There are many perks to remaining with the same commercial banker for years on end. You’re able to form a trusting relationship with a party that is essentially an extension of your operation. This often leads to industry insights, better pricing, and more personalized solutions. This is only successful if you find your commercial banker values your goals. What makes this lender different from the rest?
Our lenders are ready to answer these questions… is yours?