On March 11, 2019, Federal Reserve Chair Jerome Powell indicated there will be no further rate hikes in 2019, even though he suggested that two were likely this year as recently as December 2018. Then in August 2019, the Fed finally cut rates for the first time in 10 years.

A rate cut is welcome news for borrowers and investors. However, declining fixed income yields is also a sign of slowing growth. The Federal Reserve does not see the economy as strong enough to withstand higher interest rates.

It’s hard to accurately predict the future. The bond market is telling us one thing and the stock market is telling us another.

But when you’ve got a bird in the hand, don’t let go. Every homeowner should at the very least refinance their mortgage now and boost cash flow.

Originally, I was going to entitle this post, How To Get The Best Mortgage Interest Rate Possible. But after a couple weeks of battling, I failed to do such a thing due to a lack of convincing skills, poor timing and good old fashion bait and switching.

Before I tell you about my failure, let me tell you how I recommend getting the best mortgage rate possible. I’ve refinanced eight times across four properties over 16 years.

I never thought I would refinance again given we were in a rising interest-rate environment. The Fed decided to kill our expansion in 4Q2018 when they signaled a couple more rate hikes in 2019 and beyond.

It also felt good when I paid off my last property in 2015. With rising cash flow since then, I figured I would just pay off my 5/1 ARM that was set to adjust this summer to 4.5% from 2.5%.

But since the Fed backtracked, mortgage rates have collapsed in 2019 and will likely stay depressed for the foreseeable future. I figured it was worth refinancing again, especially if I could get a reasonable rate with all closing costs baked in.

In the end, I locked in a 10/1 ARM for 3% with -3.75 points equal to a $3000 credit towards closing.

This rate is pretty good, but I could’ve gotten better terms. This article will help you figure out what to do and what not to do to get the best mortgage rate possible.

If my quest to refinance my primary home mortgage doesn’t make my views obvious, I believe paying off your mortgage is a bad financial move when the yield curve is inverted.

I’m in an interesting position where I have both, paid off properties and mortgaged properties. I also have the ability to pay off my mortgages tomorrow. Therefore, I can argue both the quantitative and the qualitative side to paying off a mortgage or not without much bias.

At the end of the day, I want everyone to make the best financial moves in order to decrease financial anxiety, boost wealth, and increase happiness. As a family man now, I care about these three things for readers more than ever before.

Even though a no-cost refinance sounds great, there’s really no free lunch.

It’s like marrying someone for their money. You might think you’re getting a great deal, but you’ll probably have to put up with your partner’s controlling, narcissistic, and disgusting ways. If you’re not physically attracted to him or her, then that’s a whole other set of problems to deal with.

OK, a no-cost refinance isn’t as bad as that. But there are always costs even if you can’t see them.

A no-cost refinance is a loan transaction in which the lender pays all the refinance costs.

Refinance costs includes: processing and underwriting fees, the appraisal fee, loan origination fees, title and escrow fees, notary fees, and courier fees.

These fees can easily add up into the thousands of dollars, making potential borrowers hesitate as to whether to go through with the refinance or not.

See some of the fees below I had to pay during my last refinance some years ago, but was mostly covered through credits.

To boost business, lenders entice potential borrowers by covering all the fees so there is no out-of-pocket cost to the borrower.

If the borrower gets a lower mortgage rate without paying any fees, then the decision to refinance becomes easier. The only factor to really consider is the time and effort it takes to refinance.

One of the biggest secrets banks don’t want you to know is that they make more money off larger and longer duration loans because they can charge a higher mortgage interest rate.

Banks take advantage of fear of the unknown by selling borrowers peace of mind. There’s certainly value in knowing that over a 30-year period, your mortgage rate will never go up. However, there’s something bank also don’t want borrowers to know.

Interest rates have been coming down since the late 1980s as the Federal Reserve has become more efficient in managing economic cycles and the US has grown to the world standard for sovereign assets through the purchase of US treasury bonds.

From this simple chart, you will understand:

* The risk free rate of return

* Expectations on interest rates

* Expectations on inflation

* Borrowing/credit costs

* Risk aversion, or lack thereof

* The health of the world

That’s right. By understanding what the latest 10-year treasury means, you will be able to save a lot of money, potentially make a lot of money, and stop being so fearful of the future.

Borrowing on the long end is a suboptimal use of funds. The people who are pushing you into 30-year fixed loans: 1) Are not economics majors or bond traders, but journalists and/or 2) Have a vested interest in you borrowing as long as possible so they can make as much money off you as possible.

The higher the rate, the easier it is for them to earn a wider spread.

Why A 30-Year Fixed Mortgage Is A Waste

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I’m so excited to share with you something I got in the mail the other day. No, it wasn’t a notification that Financial Samurai had won an award for being the best personal finance site. My site is too focused on understanding hard things to make us all rich to appeal to the masses.

Instead, I got something better. It was letter from my bank saying my adjustable rate mortgage interest rate is going up!

This is the first time I’ve ever received such a letter because, in the past, I would always refinance my 5-year ARM (my preferred ARM term) lower before the fixed period was up.

But with interest rates having moved up since I bought my house in 2014, the logical thing to do was keep holding it until the reset.

Updated for 2H2019

Despite the Fed raising interest rates methodically since late 2015, mortgage rates have actually gone nowhere during this time period.

First, let’s look at the Fed Funds rate chart since end of 2015. The hikes have been steady and quite steep based on where we came from.

Now let’s look at various mortgage rate terms since 2015. Notice how the average mortgage rates for a 30-year fixed, 5/1 ARM and 15-year fixed are all back to where they were at the end of 2015.

Why aren’t mortgage rates increasing along with the rise in the Fed Funds rate?

The simple answer is that the Fed does not control mortgage rates. The bond market via bond investors do.

The Federal Reserve sets the overnight lending rate (Fed funds rate), which determines how expensive it is for banks to lend money to each other on overnight transactions.

This short-term rate helps determine money market rates, checking account rates, short-term CD rates, and even egregious credit card rates. For example, you can now get a healthy 2.45% money market rate whereas back in 2015, the best you could do was around 0.25%.

Mortgage rates, on the other hand, are influenced by the 10-year US Treasury bond, which is determined by the market, not the Fed.