The big news Wednesday was the Federal Reserve decreasing the cost of borrowing money, by cutting the benchmark interest rate by one quarter of a percentage point, to 1.75%. This can have a large impact on interest rates going forward, but the benchmark rate and mortgage interest rates don’t necessarily go hand in hand.
Your main borrowers affected by this news are going to be borrowers with an ARM, or adjustable-rate mortgage, and even so, it will not be a large change. The best explanation of this is that the fed rate and mortgage rates are not directly linked.
The Fed rate is used for short-term borrowing, and the mortgage rate is a long-term proposition, typically 15 or 30 years. Long term mortgage rates generally rise at the same levels as 10 year treasury bonds, although these two are not actually linked, either.
10-year treasury bonds and mortgage rates usually rise in tandem because they are the same type of loan – a stable, long-term investment that is attractive for stable, long-term investors. They aren’t tied in any way other than the fact that they compete for the same dollars, but they are reliable indicators of each other’s growth and decline.
Your mortgage rate won’t likely drop because of this change to the fed’s benchmark rate, unfortunately. It’s not a large enough drop and doesn’t move the markets. In fact, most markets had anticipated this drop and prepared for it, writing at least a quarter point drop into their projections.
This is illustrated by the interest rate not changing a point Thursday, despite the news. When the markets can prepare for news, the news doesn’t move the market.
While some homeowners that have ARMs may see a slight decrease depending on when they are scheduled to reset, it doesn’t change the fact that mortgage rates for fixed rate mortgages have held steady at historic low levels. The rates for 15-and-30-year mortgages are hovering in the mid-3% level, as opposed to 4.6% a year ago.
This percentage point difference is a massive incentive for both new homebuyers and current homeowners who want to refinance. That savings on a $200,000 mortgage can give you an extra $125 to $150 back in your pocket every month in a refinance and save you as much on a new home purchase.
This is a historically great time to purchase a home or refinance one. You will save money if you can refinance your home right now. You can afford to buy a bigger home right now. A cash-out refinance right now can rid you of your credit card bills, put money in your pocket, and fund home repairs and improvements. The sky is the limit and you have many choices about how to handle a lower interest rate like you have today. We just want to help you make the right one.
Call The Home Loan Expert Team in St. Louis at (314) 781-9700, Chicago at (773) 770-4727, Indianapolis at (317) 550-1515, and Nashville at (615) 810-8555. You can always apply online with our 5-Minute Loan Approval at hero.loan for your VA Loan, and www.thehomeloanexpert.com for your other mortgage needs, and we’re also open on Saturdays and will come to you to help close your loan. We work hard to make it easy on you. Nobody gets lower rates on better loans than The Home Loan Expert, Ryan Kelley, why go anywhere else?