2 Interest Rate Cuts Down and 1 to Go with the Fed
The Federal Reserve has moved interest rates down 1.25 percent or 125 basis points within 2 moves of .75 and .50. Many people now feel that the Federal Reserve is likely to move yet another .50 percent the next time they convene maybe even sooner if some bad news comes our way first.
Planning to Refinance - Target July
Now for rate cuts to work their way through the banking and mortgage system, it usually takes about 6 months. The banks have the technology to make decisions and actions faster. They often times choose not to do so and only move under competitive pressure from their rivals. In the mean time they will benefit themselves from arbitrage (getting their own better interest rate deal via the Fed and NOT passing that on to consumers). Essentially for a few months, as long as they can hold out, they will pocket all the profits from the rate cut.
Banks will not move their own interest rates down until their greedier volume hunting rivals start trying to take some of their business away with lower rates and offerings. So the race to the bottom probably won’t kick off for another month or two and then it historically takes about 6 months to work its way through the system. So if you are in a hurry to refinance, but you can hold out safely until summer, you could end up getting a better rate.
You will need to compare the potential savings then versus the savings that you forego in refinancing now. If you are financially strapped you should also consider whether or not you can keep paying your bills as is. If waiting 5 months might put you in the danger zone, then consider refinancing now and maybe again in a year. This might enable you to stair step your way down to the lowest rate possible.
In a future article we are going to talk about the importance of performing a Phase I Environmental assessment on certain types of properties before you buy.
