What Will The Fed Decision Do To Mortgage Rates?
What are consumers thinking about the recent cut in interest rates? Should the average consumer expect a cut in their mortgage? They may be disappointed if they think they’re in for immediate relief. The jury is out and market experts have indicated that just because the Federal Reserve Board has cut interest rates does not mean that mortgage loan rates will see the same drop. On the other hand it may be a sign that rates will drop over time.
The industry is abuzz as the Federal Reserve has made their move, announcing a change in the interest rates. Cutting rates by a half of a point, the Fed is essentially making a commitment to the real estate market. Some experts are concerned that this may cause a sense of false hope within the real estate market. Mortgage loans may not do exactly what some think as they tend to operate on a slightly different standard.
The Fed obviously took the real estate condition along with the mortgage situation and used them in the equation. Interest rates on mortgages often move in anticipation of changes at the Fed level, oftentimes a predictor of changes to come.
Although there is a perceived relationship between the recent interest rates put out by the Federal Reserve and rates on mortgage loans, there is no relationship between the two. There are other larger contributors to the rates consumers see when applying for a mortgage loan. For example rates on a thirty year fixed mortgage is often seen as a result of changes in the ten year note from the Treasury. On the other hand you have adjustable rate mortgages which tend to more volatile. These rates are often based on the LIBOR which is mortgage talk for the London Interbank Offered Rate. This is a little known fact that could have an effect on much of the excitement over the recent rate cuts.
Just recently the real estate market has started to realize a significant decrease in the thirty year mortgage loan rate. During the summer the market was topped out, with rates hovering around the 6.75 percent mark. Now that the market has started to level off a bit the thirty year rate on mortgages was hovering at just over 6.3 percent just a couple of weeks back. This is a sign of good times ahead for borrowers with adjustable rate mortgages as they can begin to look at the possibility of switching over to a fixed rate mortgage in order to cut their payments.
Even though there is still concern over the market, with analysts urging caution, there is reason to believe that there is a positive shift taking place that will benefit the home buyer. Adjustable rate mortgages, which are oftentimes closely related to one year Treasury note, have seen a turn down in their rates. This is different from the adjustable rate mortgage loans previously discussed which are based upon LIBOR and have not seen a decline in rates.
There is one group of borrowers that will see an immediate drop in rates as a result of the recent Federal Reserve decision. If your mortgage loan happens to include a home equity line of credit then you have something to cheer about. This rate, which is tends to oftentimes be based on the prime rate, has a tendency to align itself with the Federal interest rate.
Borrowers are concerned about the long term effects of all of this. The positive effects will likely be seen by consumers when they go to the bank for a loan as the banks have more reasons to lend to more people. With the recent foreclosure snafu many lenders were forced to clamp down on who they were lending money to, leaving room for only highly qualified buyers. The Federal rate cuts have made the cost of lender funds less expensive, giving lenders a prime reason to be more flexible with their lending budget. This is a sign that the long term implications of the Federal Reserve decision are more important than the short term outcome.
This may not help you if you are falling behind on your mortgage payments or if you are having trouble getting financed because of bad credit. Many consumers are hopeful that this will help with their mortgage loans by relieving some of the high payment load, but they are merely entertaining a fantasy. The Fed tends to make solid decisions that will not give way to any drastic changes in the near future.
This does make lending out money a little more attractive for mortgage lenders. Considering that banks happen to be at the center of the mortgage loan debate, they are just as invested in the Federal Reserve decision as the consumers are. While lenders will probably be much less likely to lend out money to subprime borrowers, the interest rates for those borrowers with good credit should see a decline. With housing costs on the rise and jumbo loans becoming more prevalent, this should be a great situation for responsible buyers to gain an upper hand.
For more quality information related to mortgage loans we recommend mortgage-loans.net. This site provides quality information on mortgage related topics such as home equity loans, mortgage rates and much more. Also included is a mortgage amortization calculator for comparing payoff dates and finance information.
The information provided here is for educational and learning purposes only. Consumers involved in any mortgage or home loan related decision are advised to speak with an attorney.
