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How the Fed Rate Cut Affects Mortgage Rates
January 7, 2009 by Mortgage Align · Leave a Comment
Last year, we wrote an article – Does the Fed Rate Cut Affect Your Mortgage Rate?, where we outlined how the Fed Funds Rate, as part of the larger economy and economic markets, can affect mortgage interest rates.
This week, the Federal Reserve (the Fed) lowered the Fed Funds Rate to 0.25% – its lowest in history (and even zero in some cases). This has been like a defibrillator to the sluggish economy, shocking some life into the markets and spurring economic activity.
Fixed-rate mortgage rates, though not directly tied to the Fed Funds Rate, responded positively to the Fed Funds Rate cut and dropped very low yesterday. “How low did they drop?” Good question. Mortgage rates actually dropped to levels near historic lows. And they've stayed low.
Just as an overview, the Fed Funds Rate has a strong (if not direct) affect on the following:
- credit card rates
- adjustable-rate mortgages
- interest on savings accounts
- Prime Rate (home equity lines are based on this)
While it doesn't have a direct affect on long-term interest rates (such as 30-year mortgage), the affect it has on the financial markets overall can influence long term rates, which is what we saw yesterday.
So, if you are considering refinancing or purchasing a home, now is the time. With rates at these levels, you'll enjoy more house or mortgage for the same payment. Just lowering your rate 1% on a typical $200,000 mortgage can save you about $125 a month or $45,360 for the life of your loan. That is some money to put in the bank, folks.
Taking advantage of the market may seem like a no-brainer, because it probably is. If you can lower your payment, why not? If you can put money back in your pocket that you were previously putting in your mortgage, why not? If you can lower your mortgage rate by just 1% (see financial reasons to do so above), why not? Do you need more reasons?
And don't forget, housing prices are at the lowest they've been in generations. The opportunity to purchase a home with a low price and low rate is unprecedented. Real estate investors who do their homework and invest wisely can also get deals they couldn't have even dreamed about just a few years ago.
Thanks to the Fed Funds Rate dropping to the lowest level in history, mortgage rates have also dropped. No one is sure how long they will stay low. Get in touch with a mortgage professional to see if you can benefit from the current low rates. Waiting may be one of the costliest decisions you've ever made!
