Tuesday, March 18, 2008

Is the Fed Rate Cut What the Housing Doctor Ordered?

Source: Informa Research Services

Today, the U.S. Federal Reserve slashed the discount rate by 75 basis points down to 2.25%. But how does the Fed rate cut affect you and your search for a new home? Is the Fed rate cut the miracle elixir to cure the housing market pain?

When the Fed makes a rate cut, it actually doesn't affect consumers directly since the Fed funds rate is the rate that financial institutions are charged for overnight loans to fulfill reserve funding requirements. However, this does affect consumers indirectly by allowing financial institutions to offer more financing options, possibly at lower rates.

The Fed cut should not directly affect fixed rate mortgages, but it can have a more immediate impact on short term loans, such as adjustable rate mortgages (ARMs). Check online rate comparison tables to stay up to date with rates in this volatile market.

This should be good news for responsible borrowers looking to purchase a home. If home prices either continue to drop or stay put, and more financing options become available, the market may look like a buyers market soon enough.

But if you already own a home, don't fret! The Fed rate cut could mean an opportunity to refinance an existing mortgage at a lower rate or use your equity to fund home improvement projects. However, be aware that some lenders will have set floor rates. These floor rates may be set slightly higher than how the rate is typically calculated, which is prime rate plus a margin. To be sure you are getting a good rate, check convenient home loan equity rate tables.

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