What will a 0% interest rate mean for mortgages?

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Trump: I'm happy to cut rates to zero 0:50

(CNN) - What does it mean for mortgages that the Federal Reserve cuts its target interest rate to almost zero percent?

This is the second emergency rate cut in two weeks and brings the federal funds rate to between 0% and 0.25%. It is designed to stimulate the economy by making it cheaper for people to borrow money for a mortgage, among other things.

Along with the Federal Reserve's move to buy at least $ 500 billion in US Treasury bills and at least $ 200 billion in mortgage-backed securities, the actions indicate that the Fed is putting the economic effect of the coronavirus outbreak at a level similar to that of the global financial crisis in 2008.

This is how this affects mortgage rates.

Will mortgage rates go to zero?

No, mortgage interest rates will probably not go to zero percent.

The federal funds rate is the rate that banks pay to borrow money overnight.

"Even the government cannot borrow at zero percent," said Greg McBride, chief financial analyst at Bankrate. "The more solvent consumer has a higher risk than the United States Treasury, so they will pay at least a couple of percentage points more than that."

But mortgage rates are at record lows and because of that there is a growing demand to take advantage of them.

Should I rush to refinance or get a mortgage?

There is no urgency right now, McBride says, because mortgage companies are awash with applications.

"There is literally a traffic jam to get on the mortgage refinance highway," he said. "They don't find those rates low on a frequent basis because they're setting rates to have the opportunity to work amid the initial wave of demand."

There are many things at stake in the economy right now, but conditions are in place for mortgage rates to remain low for the rest of 2020, he said.

"Once lenders alleviate the backlog of applications, rates should normalize and that will make it an opportune time to enter."

What does this mean for the property market?

After falling to all-time lows, the 30-year fixed interest rate increased slightly last week. Rates are now expected to drop again, said Danielle Hale, chief economist at Realtor.com.

"The lower rates can lead home buyers to buy," said Hale.

Some people may feel the need to buy or refinance now to avoid losing the option. That will keep demand stronger in the future, he said.

The Fed is acting, Hale said, because the way forward for the economy is uncertain. That could harm the property market both directly and indirectly.

"If shoppers hesitate to shop because they want to avoid contact with others, this could directly decrease home sales," he said.

"As more people practice social distancing for longer periods of time, a slowdown in consumer spending could eventually lead to job losses and lower incomes."

Monetary policy is not a quick-action tool, Hale said. "It will be some time before we know if this action was enough to sustain economic growth, but it is a huge and coordinated move that will put households, the property market, businesses and the financial sector in a better position."

United States Federal Reserve