Released at 2:15pm ET, the Federal Reserve announced their next move. They’ve decided (in a 8-2 vote) that they are cutting the fed funds rate by .25%. This brings the fed funds rate to 2%. This also brings the prime rate down to 5%. They also decided to lower the discount rate another .25%. Cheap money folks.
So, what does this mean to you?
Your rates will decline exactly a .25% on:
- Your credit cards (assuming your payments aren’t in default).
- Your home equity line of credit (a.k.a. HELOC) just got cheaper… assuming it hasn’t been closed by the bank).
- New home equity lines of credit.
What this doesn’t mean is that long term mortgage rates are decreasing (such as 15 and 30 year loans, both fixed and adjustable). I don’t want to sound like a broken record, but the fed funds rate (FFR) has NO direct correlation with mortgage rates. Often the rate cut actually causes mortgage rates to increase.
As money gets cheaper (such as your credit cards, as mentioned above), spending goes up. When spending goes up, inflation goes up. When inflation goes up, so do interest rates. Are we cool so far?
Here are the facts from the past. Keep in mind that as morgage bond values decrease, mortgage rates increase:
Photo courtesy of Mortgage Market Guide.
Only time will tell what the most recent rate cut will do for mortgage rates. The immediate reaction was for the better (approximately up 44bps on the day as I write this). Give the market some time to digest the Fed’s statement, and don’t be surprised if things turn for the negative (again).
Money is still cheap, so if you’re considering making a purchase or refinance – I’d recommend getting advice from a qualified mortgage planner on what you’re next step should be (which IS NOT always moving forward with new financing).
{ 1 trackback }