The fed cut rates again yesterday leaving many people wondering what this all means for them. Will Mortgage rates drop, will this ease troubles for those going into foreclosure? What about credit card rates? Is now a good time to refinance? Below is a breakdown of how the fed rate cut will actually affect you.
What is the Fed Funds Rate? The Fed Funds rate is the rate at which banks lend one another money each night, and it also helps determine all other interest rates. The banks use it to set the prime rate for lending money to their best customers, usually by adding 3 percent.
Fixed Mortgage Rates: Fixed mortgage rates are tied to long-term bond yields that move based on the outlook for the economy and inflation. Mortgage rates therefore are not directly affected by a rate cut but could be depending upon how the market interprets the rate cuts and their potential effect on the economy. The Fed rate cuts do affect short-term adjustable rate mortgages. If your facing a reset on your ARM, you will likely be in a better position then you were a short while ago. If your looking to purchase a home, you might get a lower rate but qualifying for a loan has gotten a lot harder. Getting 100% financing or getting a loan based on stated income is highly unlikely.
The Foreclosure Crisis: The Fed rate cuts won’t do much to ease the foreclosure crisis as most of the people facing foreclosures because they can’t make their monthly payments have no equity in their homes and no money to put down to refinance so their position is unlikely to be changed.
Credit Cards: The good news for those of you who have credit cards with rates tied to the prime rates; now is a great time to pay off you debt at a lower rate. You’ll have to read the fine print on your credit card but those with good credit are likely to have these kinds of cards. Rates will also be bit better on home equity loans & car loans which will help save you a little cash on big purchases.
Is it a Good Time to Refinance?Experts say it is, especially for borrowers with ARMs and good credit who don’t plan to move any time soon. Even before Tuesday’s Fed action, rates on 30-year mortgages had fallen to the lowest level since the summer of 2005. There’s no guarantee, though, that mortgage rates will keep falling as the Fed cuts short-term rates.They could even rise if the Fed is successful in stabilizing the economy and inflation fears accelerate.
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