Feds Slashed Interest Rates to 0%. But Will Mortgage Rates Follow?

With the stock market falling and fears surrounding the coronavirus spreading worldwide, both the federal and mortgage interest rates have embarked on a rollercoaster ride of unexpected turns. In the latest move, the Federal Reserve slashed interest rates to short-term rates of between 0 percent and 0.25 percent, but economists say that the mortgage rates will not follow. Though economists do believe that mortgage rates will drop again, they do not expect them to reach the rock bottom levels that the Federal interest rate currently sits, especially with the limitations of lenders’ processing capacity and the residual fears of the last recession’s bad mortgages.

Mortgage rates, like the stock market, have been on a wild ride in recent weeks. They dropped to record lows earlier this month in response to the spread of COVID-19—and then shot right back up again. And it looks like it's about to get even bumpier after the Federal Reserve slashed its own interest rates over the weekend in a bid to stave off a recession.

That means mortgage interest rates are likely to go back down again—a boon for homeowners and homeowners hoping to refinance their existing loans to save on their monthly housing bills. But they're not expected to plummet to the Fed's new short-term rates of between 0% and 0.25%. Instead, mortgage rates are likely to drop from about 4% on Friday to the mid- to low-3% range in the coming weeks, mortgage experts predict.

These rates are for 30-year fixed-rate loans. Rates are lower for short-term and jumbo mortgages.

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