There has been a massive refi boom over the last month due to low rates, so you’re wondering, “Should I refi too? Will rates go lower?”  If you go look at rates now, it’s likely they won’t be as low as you expected. Not only are we going to explain why, we’re going to show you why NOW is the time to refinance because rates are set to go UP! 

Here’s the breakdown:

With the Federal Reserve cutting the fed funds rate to 0 – 0.250 percent, consumers were led to believe that mortgage rates are heading there, too. That is unfortunately not only not true, but not happening any time soon. The Federal Reserve does not set rate sheets. You can think of the 30-year mortgage rate as a combination of the (risk-free) 10-year Treasury rate offered by the U.S. government  plus a spread that makes it worthwhile for the bank to lend the money, covering the bank’s operating costs and generating a profit. Without a spread over its own cost of funds, a lender could not continue to operate and fund loans. 

That is why mortgage rates are consistently well above the rate on the 10-year Treasury (a commonly accepted indicator of rate movement), historically 1.8 percentage points or so, and currently around 2.5 percent. So why has that spread widened? One reason is that low rates have encouraged a massive wave of refinancing, overwhelming the ability of banks to keep up. In some cases lenders are actually raising their rates to make business more profitable. Others raise rates to discourage new business because their underwriters are too busy. Still, now remains a good time for many borrowers – millions, actually – to refinance their mortgage and reduce their monthly costs, especially as some economic uncertainty looms.