Member Advice: Miles Miller of The Lending Pact
In these confusing times we are excited to share some advice from one of our TSG Columbus Members. Miles Miller of The Lending Pact has provided a total explanation of how this crazy climate is affecting mortgage rates and the best way to navigate through these uncertain times. Miles breaks it down to the basics and really explains what is going on and how he and his team can help guide you through.
Free Mortgage? Not so fast…
The past couple days I felt like the Grinch who actually stole Christmas, time and time again. Past clients, friends, and family have reached out excited about opening the gift of refinancing their mortgage to 0%. Unfortunately, the Federal Reserve rate does not equal mortgage rates. I repeat: your mortgage rate will not be 0% right now. Let me explain.
If you haven’t heard, as part of their Quantitative Easing (QE) announcement late Sunday night, 0% is the new Federal Reserve rate for the foreseeable future.
Let me break it down:
What is the Federal Reserve, and what do they do?
The Federal Reserve System is the central banking system of our country. It was created on December 23, 1913, with the enactment of the Federal Reserve Act, after a series of financial panics led to the desire for central control of the monetary system in order to alleviate financial crises. Panic, crisis, pandemic… All words that apply to our current climate.
The Fed Reserve has two main goals:
High employment
Low inflation
They achieve this through four main avenues:
Setting monetary policy
Supervising and regulating banks
Providing payment services
Maintaining financial stability
What is happening right now?
There are instances where these main avenues may not provide enough support. During these times, the Fed can take action to help prevent problems in the financial sector that could result in, or accelerate, a recession.
**It is important to note that to fight inflation, the Fed can aim to raise the federal funds target rate. Alternatively, to fight off a recession, the Fed can aim to lower it.
So what’s all the buzz about right now?
The Feds cut rates to fight off a recession in response to the Covid-19 pandemic, as part of their $700 billion QE. It is not the first time they have done this, and it certainly won’t be the last. For example, after the Sept. 11 terrorist attacks, the Reserve Banks made a huge number of loans directly to banks, credit unions and other financial institutions to ensure they could still function and serve our communities.
How does this impact my mortgage rate?
When it comes to mortgage interest rate equation, this is what you control:
Credit score
Loan-to-value
Type of home
Product
There are also elements of the equation that you do not control, such as:
Inflation
Job growth
Overall economy
FEDERAL RESERVE
Decades of market cycles have taught us that typically when stock prices go up, bond prices go down. In other words, bonds and stocks have an inverse relationship. As part of QE, the Fed will be dumping $200 billion into agency-backed mortgage securities. By doing so they are creating liquidity and demand for mortgage-backed securities, which then drives down rates.
Could they dip below 3%? I certainly believe it is possible.
Should I refinance right now?
This is a very complex question that deserves to be answered individually, and privately between you and a Loan Officer (we would love to help!).
Here are a couple preliminary questions to think through:
How long have do I plan to stay in the home?
Do I have at least 5% equity in the property?
Do I want to take cash out of my equity to invest, remodel, or consolidate debt?
Do I want to roll closing costs into the loan, or can I pay out of pocket?
Do I want to lower my term? (years remaining on loan)
What is my current interest rate? (If it is above 3.75%, let’s have a conversation!)
Finally, be careful of big box lenders as they will sell you through this time of fear.
It may not make sense for you to refinance, find a lender who you can trust during this crazy time.
The Lending PACT would be honored to have an initial conversation to educate you on the possibilities of refinancing. We have helped tons families get into a better mortgage position.
If you have more questions or are interested in getting in touch with Miles and his team you can email them at [email protected] or reach out to Miles directly at 614-783-7691
Make sure to check out and follow them on instagram @thelendingpact