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Why Aren’t Mortgage Rates at 0%: Clarifying Misconceptions

By Brad King, US Bank

One of the results of the turmoil caused by the Coronavirus is the wild convulsions in the stock market and bond market.

In reaction to this instability, the Federal Reserve lowered the Federal funds rate to nearly 0%.  This is what the Fed charges on short term loans to banks. The Fed is basically a “bank” for banks. When they need short term cash the Federal Reserve provides liquidity to the market, providing stability.

This directly impacts the “Prime” rate (interest rate charged by banks) and may correlate to many consumer-related borrowings such as home equity lines of credit, personal loans, auto loans, etc.

Mortgage Rates are not set by the Federal Reserve. They tend to follow the 10-year Treasury Index

Contrary to many media headlines about interest rates, mortgage rates are NOT set by the Federal Reserve.  Mortgage rates tend to follow the 10 year Treasury index. However, with the stock market meltdown that occurred here beginning in mid-March, even this pattern has gone off the rails.

Surprising to many, mortgage rates actually spiked this past week due to lenders pulling back from the risk of new mortgages and as a way to “tap the brakes” from overwhelming volume. Over the past few weeks, there was a massive influx of refinancing applications which began to clog the pipeline for many lending institutions.

What does this all mean moving forward?   

Expect mortgage rate volatility to continue until the stock and bond markets settle back down from the huge swings that have been occurring.

Some experts are expecting mortgage rates to eventually go a bit lower, perhaps going back down to a rate approaching 3% later this spring or summer. With the market stabilizing and mortgage lenders getting a handle on their pipelines it may allow for rates to go lower.

However, with every expert predicting lower rates there is another who predicts potential risks that may push rates up a bit again.

Mortgage Rates are Still Historically Very Low

The bottom line is in the current rate environment any mortgage rate with a “3” in front of it is still a historically low rate for a consumer’s long term purchase.

About the Author: 

Brad King is a Private Wealth Mortgage Banker in Jacksonville. He can be reached at 904-708-7453 or

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