FED cuts rates 2.25%

Guest 0.10 Dollars($)

FED decides to cut rates 2.25%. Will this really be helpful? Can this rate cut be able to settle down the turmoil? Is it a good time to refinance to make the rates lower?

Thanks.

Guest 0.10 Dollars($)

The FED rate cut won't affect those having fixed rate mortgages but certainly it will have an impact on borrowers having ARMs about to reset. I mean the rate cut will lower payments on ARMs and give some relief to subprime borrowers who were anticipating that their next reset would leave them in foreclosure.

helping_user

Hi Johny,

That's a very interesting topic. Smile

So far as I know, the rate cut has led to dropdown of Fed Funds Rate and hence the Prime Rate to which rates on Heloc and variable credit cards depend. So, it can be said that the primary aim behind this rate cut was to encourage people like you and me to borrow more and spend more so that the economy grows. Smile

Thanks.

gmakerley · Posted: Fri Mar 21, 2008 9:53 am Post subject:

when the fed cuts rates, people immediately call their mortgage loan officers expecting to get a reduced rate. they are continually amazed to find that rates have not declined (and in some cases, have risen).

the only things the federal reserve can control are the discount rate and the fed funds rate. neither of these is equivalent to a mortgage rate. as we know, mortgages can be in effect for 30 (even 40) years, while any rate set by the federal reserve can be in effect for only a day.

mortgage rates are actually based on mortgage-backed bonds known as mortgage backed securities (MBS). these are bonds issued by Fannie Mae and Freddie Mac, and how these bonds perform when traded impact mortgage rates. with bond prices rising, you will find that mortgage rates drop; and as the bonds fall, rates rise.

as helping user pointed out, prime rate will be affected by cuts made by the fed; that will impact heloc and credit card rates, and will also affect savings rates. banks have dramatically reduced certificate account rates in the last few days, and savings rates have been in the tank for years now, anyway.

the vast majority of the public is under the impression that mortgage rates will plummet once the federal reserve drops rates, but that is far from the truth.

we truly need to educate our consumers. the old adage that knowledge is power proves itself over and over.

larry · Joined: 27 Jun 2007 Posts: 3328 473.51 Dollars($)

Hi Johny,

Welcome to the forum.

George has given you great info here. FED rate cut will only affect HELOC and credit cards debt. The aim here is encourage the borrowers to buy more and spend more to revive the economy from this crunch.

So it is apparent that FED's rate cut does not mean that mortgage rates are down or it will be helpful if you refinance. It is just another attempt to boost the economy.

Feel free to ask if you have any further questions.

Best of luck,
Larry

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