My immediate reaction to the announcement of the ½ point cut in the Federal is SO WHAT?
I think it is unreasonable to expect to see a major rush of buyers applying for new loans due to this cut. The people who will benefit immediately may be those who have adjustable rate mortgages that were ready to change. And I say maybe because just because the Feds have cut the rate doesn’t necessarily mean that your mortgage company will pass any savings on to you.
We all hope that this announcement will begin to stir positive press and better news for the local housing market. In the meantime if you know your rate is scheduled to adjust and you are struggling to make your payments now is the time to pick up the phone and make a call to your mortgage company. Don’t assume that this announcement is going to work in your favor. Be proactive. Your mortgage company would rather work with you than own your house!
Here is a quick run down from USA Today on the impact on the rate cut:
Credit cards. Most banks peg credit card rates to the prime rate, which fell to 7.75% after the Fed’s rate cut Tuesday. But you might not get a lower rate for one to three more billing cycles, depending on when and how often your bank resets rates.
Fixed-rate mortgages. Average rates fell to 6.31% last week, down from 6.74% in June. It’s hard to say if rates will fall further because fixed mortgage rates typically follow the 10-year Treasury note’s yield, which was unchanged Tuesday at 4.47%.
Adjustable-rate mortgages. About half of ARM rates follow the yields on short-term Treasuries, which fell Tuesday. The three-month T-bill yield, for example, fell to 3.94%. If your ARM is tied to Treasuries, your rate won’t rise as much as it would have if the Fed hadn’t cut rates. ARMs pegged to the London Interbank Offered Rate might not get much relief. Most subprime loans — higher-rate loans taken out by people with poor credit — are tied to LIBOR. LIBOR has remained high because many banks remain reluctant to lend. Those willing to lend demand higher rates to account for today’s risky credit markets.
Savings rates. Yields on money market mutual funds closely follow the fed funds rate and should fall half a percentage point in the next few weeks. Rates on bank CDs may fall less, because banks are bidding aggressively for consumer deposits.