The Fed Rate Cut and You

Last week the Federal Reserve Bank cut the Fed Funds and Discount rates by a half a point to 4.75%. This move is widely seen as a bailout for Wall Street and many U.S. banks that made home mortgage loans to unqualified borrowers in an inflated housing market. These borrowers are now beginning to default in ever increasing numbers and the banks, hedgefunds and brokerage houses are foreclosing on more and more houses. These foreclosures are causing big losses at the lenders, causing many of them to shut their doors and file for bankruptcy.
So, how does the rate cut affect the lenders and really, more importantly, you and me? First thing that happens is that the prime rate was cut by the banks. The prime rate affects the interest rate you will pay on credit cards, auto loans, home equity lines of credit and many other consumer and business loans. How is this a bailout for the lenders? The lower fed funds rate will move many of the indexes lower that are used for adjustable rate mortgages (ARMs). These lower indexes will cause ARMs to not rise as high when they make there next adjustments and, hopefully, keep fewer homeowners from foreclosure. Fewer foreclosures will, hopefully, result in fewer homes being dumped on the market by the lenders and, hopefully, bank and lender failures.
This rate cut maybe the first of several and may open the window for homeowners to refinance into a fixed rate mortgage. Because it will be when, not if, the lenders are back onto firmer financial footing and the Fed raises rates again.

Give me a call to explore your home mortgage situation and find out if you may be able to save some money on your house payments.

Fixed interest rates for home mortgages under $417,000 as of 9/24/07 (p.m.) are:
(Rates quoted are for loans with 0 points.)
30 year fixed: 6.25% (APR 6.31%) payments are $2,567.54/mo.
15 year fixed: 5.875% (APR 5.98%) payments are 3,490.78/mo.