As most of you have read, the Fed jumped in with an unexpected intersession 3/4 of a point rate cut to the federal funds rate Tuesday, January 22nd and will most likely be infusing another “anticipated” half point cut coming up January 30th.   That brings the federal funds rate to 3.50% currently and on January 30th we could be looking at 3%. In addition to cutting the funds rate, the Fed said it was reducing its discount rate, the interest it charges to make direct loans to banks, by a similar three-quarters of a percentage point, pushing this rate down to 4 percent.
How does this effect mortgage rates is what we ask in the real estate business?  It has a direct effect on short term/adjustable rates which means if you have a HELOC, an adjustable rate mortgage (ARM) or credit card debt.  For example – chances are you have a credit card whose interest rate is tied to the prime rate -which is simply 3 points above the Federal Funds Rate – in this case it just went from 4.25% to 3.5% (and most likely will head to 3% in a week.)  This means the interest rate your credit card charges you just went down.  If you have a Home Equity Line of Credit – then your minimum payment just went down as well as it is also tied to the prime rate.
What about those 30 year fixed mortgages – wouldn’t those go down as well?  Not exactly – Fixed mortgage rates are tied to long-term bond yields that move based on the outlook for the economy and inflation.  And guess what? The long-term outlook for the economy isn€™t exactly rosy right now.
What does this mean to you?  Now is a great time to refinance, as many mortgage brokers see the 30 year mortgage rates going up and not down.  Currently, the 30 year fixed is at it’s lowest rate since 2005.  If you are waiting for long-term mortgage rates to fall further from here, don’t count on it. Your best chance to lock in the lowest mortgage rates since 2005 is now. Getting your application in process will allow you to capture a rate near all time lows and, with many experts predicting home values could continue to decline, waiting could kill your chance to capture a great rate if your home doesn’t appraise.