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    Email: joe@joemetzler.com

  • Fed cuts rate, now what for mortgages?

  • Now I know what you are probably thinking, the Fed lowered rates today, so the mortgage rate quote I got last week will be 0.25% better, right?Well, not so fast. The Fed has absolutely nothing directly to do with long-term fixed rates.
    The Fed controls something known as the Fed Funds Rate. This is the rate the Fed would charge say a big lender if they were to borrow money from the Federal Reserve. It is not a direct correlation to fixed rate loans. Of course if the cost of us obtaining money just went down, there is a chance this will get passed along to you. But this is only one small portion of what makes up your interest rates, so other factors could easily erase any improvement in our cost of the money.
    This reduction today in the Fed Funds Rate has been telegraphed from the Fed that it was likely to happen for about 8-weeks now. Therefore any reduction to you was already priced into interest rates, resulting in absolutely no change whatsoever in long-term rates. If I were able, and we are not, to re-lock today, you would get the exact same rate.

    Finally remember points and fees.  I’m sure you may see someone claiming some rate better, or lower, but at what points and fees??  So at the end of the day, you’ve got a great killer deal for today’s market.
    On the other hand, this rate does effect almost immediately other types as loans, as they do not work the same way as long-term loans. Car loans, credit cards, and short-term mortgage loans, like a 5-year adjustable loan, all should see a small drop. It also effects interest paid to you on your savings type accounts. The APY on all those will go down, paying you less in the next few weeks.