Thinking about a refi? Expert says be patient.

SANTA BARBARA, Calif. - The financial markets are swinging wildly and the Fed is slashing rates, you would think right now is the best time to call your favorite mortgage broker and refinance your mortgage. But, the best time to do that may still be coming.

Guy Rivera at Guarantee Mortgage in Santa Barbara writes up a daily brief for his clients. He said most of the headline grabbing news we've been seeing over the last few weeks needs to work through the system. That's why the best timing for most folks to re-fi is yet to come.

Here's why: when people hear about the Fed slashing rates, they assume those lower rates are immediate, but they are not. Lenders are hit with a wave of applications and they have a difficult time keeping up with demand, so they raise prices to reduce the demand. By rushing to start the re-fi right now, many people don't realize they will probably get a higher interest rate than if they waited, plus they will probably pay higher fees to have that application processed.

"Lenders have no way to absorb the sudden and profound increase in re-fi demand. So they simply raise prices to reduce it," said Rivera. "Lenders have priced themselves to reduce the influx of business."

If you think rates will fall far enough in the near future for you to take advantage of and eventually refinance your existing mortgage, one thing you can do is stay in touch with a broker who watches the daily rates and financial currents. You can also check with the financial institutions directly to monitor the rates they post everyday. To some extent, it boils down to making the best guess and choosing the right time to pull the trigger.

"Lower rates suggest that we will be experiencing weaker economic growth and quite possibly a recession and that will boost defaults and that also hurts demand for Mortgage Backed Securities," said Rivera. "When financial conditions tighten, as is currently the case, yield spreads between low risk and higher risk debt rise.  Mortgage Backed Securities are not immune."

Over the last week or so, Non-qualified mortgage lenders stopped funding loans and honoring rate locks altogether due to a lack of liquidity. Rivera described that news as "huge." They are considered higher risk loans because they do bank statement loans and no income verification loans.

"Even Stephen King Could Not Have Scripted This. It’s been said that the Stock market will do the most damage, to the most people, at the worst time. And the current mortgage market is experiencing the most perfect storm. Just when volume levels were at the highest in history, servicing runoff at its peak, and pipelines hedged more than ever, the Coronavirus arrived. Lenders need to clear their pipelines, but social distancing is making it more difficult for transactions to be processed. And those loans that are about to close require that employment be verified. As you can imagine, with millions of individuals losing their jobs, those mortgages are unable to fund, leaving lenders with more hedging losses and no income to offset it," wrote Rivera in one of his most recent newsletters.

So, bottom line, Rivera believes the best rates are yet to come once the air and the pipeline clears. How long that could be is anyone's guess, but stay informed and be ready for it. It could pay off in the long run.