Fed Cuts Rates But Don’t Refinance Just Yet
Assuming you don’t live in a cave (which is a safe bet considering you have a computer with internet access) you’ve likely noticed the headlines that the Fed has once again cut rates in effort to salvage the slumping economy. While it makes for some great headline news, the real question is how does this affect us individually?
For starters it doesn’t mean that pursuing an Adjustable Rate Mortgage (ARM) should appear on your short-list of objectives even if initial rates suddenly look more appealing. The rate cut is a short-term solution to a long-term problem. If you are in the market for a mortgage, consider going with a fixed rate to capitalize on these (slightly) lower rates for the long run.
Why do ARMs rates drop more significantly than fixed when news of rate cuts hits? Well, simply because fixed mortgages aren’t affected by fluctuations on the short-term economic situation and instead focus on a much broader outlook. Since the state of economic affairs still looks shaky, long-term investments (like a mortgage) aren’t enjoying the dip like the ARMs are.
Don’t let this temporary ARM dip lure you into refinancing or taking out a home equity loan just yet. Analysts predict that when the Fed steps back to allow the rates to adjust themselves, any benefits of a low initial rate will fly out the proverbial window.
