The Fed Rate Cut and Mortgage Rates
While in some case mortgage lenders will go along, at least in the short term, with a Fed rate cut, the truth is that the Fed’s fund rate has little to do with mortgage interest.
Why?
Because mortgage rates are tied more closely to 10 year Treasury note rates. Mortgage interest is a long term rate, while the Fed fund rate is short term. So while there could be some effect on your second home mortgage (especially if it is a home equity line of credit), your main mortgage interest is likely to be unaffected — even if you have an ARM.
With the latest Fed rate cut on Wednesday, the 10 year Treasury note ended up in an interesting position. These bond notes respond to inflation. Long term inflationary pressures, that is. So with this Fed rate cut, inflation could be a problem. And that means that mortgage rates following the long term bond market lead are unlikely to fall anytime soon.
So, your mortgage interest is probably going to be affected only minimally by the latest Fed rate cut. For the most part, other factors will affect what sort of mortgage rates you have to choose from, including marketing expedients for mortgage lenders desperate to draw applications for home loans.
The Fed rate cut will affect other aspects of your financial life, though. Consumer debt (credit cards, etc.) will see lower rates, and cash investments will see lower yields. And while the stock market usually does well with a Fed rate cut, it is in turmoil due to economic concerns.
This Reuters video offers more on the Fed rate cut:
Tags: bond notes, Fed rate cut, home mortgage loan, mortgage lenders,
second mortgage, mortgage interest rates, home equity line of credit
