What the recent Fed decision means for consumers
Mortgage News from Quicken Loans
A lot of attention has been paid to the Federal Reserve's decision on Tuesday to cut the Federal Funds Rate by a half percent - but what does this jargon mean for consumers? The answer can be complicated.
For more than a month, the secondary market, the investors and large financial institutions that purchase loans bundled by originators, have been spooked by the increasing number of loan defaults and the overall economy.
This has led to tighter underwriting standards, including requiring stronger credit scores and larger down payments from those who are applying for a mortgage. The result? Some borrowers have been denied the joys of homeownership or are unable to refinance and take advantage of historically low long-term interest rates.
By lowering the Fed Funds Rate, which is the rate at which banks lend money to each other, the Federal Reserve is hoping to quell investor jitters and loosen the stranglehold on credit in the secondary markets. So what does it mean for you?
The Fed Funds Rate directly impacts short-term loans, so Tuesday's Fed decision has the potential to lower interest rates on items such as credit cards, auto loans and most importantly, adjustable rate mortgages.
According Bob Walters, chief economist for Quicken Loans, this move may mean more people have access to very favorable financing, opening the doors to home ownership and refinancing opportunities.
"The Fed's actions have helped drive down the rate of popular short term indices - meaning people who have adjustable rate mortgages that are about to adjust may adjust to a rate lower than would have been the case a week or two ago," Walters said.
"But the bigger story is the impact this should have on the mortgage market as a whole. The move should bring some life back to the secondary market, easing up the on loan approval requirements that had become extremely tight over the last couple months."
"Mortgage rates have been falling for a month and a half now as the market anticipated the Fed's reduction in short term rates. Refinancing activity has picked up tremendously as the significant drop in long term rates has provided folks an opportunity to lower their rate or exit their adjustable rate mortgage for a fixed rate program."
"For consumers who are now seriously considering buying a home or refinancing an existing mortgage as a result of the Fed's actions, my recommendation is to speak with a reputable lender who can look at their current financial situation, evaluate their goals and determine the best course of action. For some people that may mean refinancing and for others, the best advice may be to stay put and see where the market goes," Walters concluded.
Many consumers currently paying home equity lines of credit (HELOC) and home equity loans may also be pleasantly surprised to find their payments go down when their next payment comes due.
This article is reprinted by permission from Quicken Loans © 2007 Quicken Loans Inc. All rights reserved.
Find the most up to date real estate news!
Find more mortgage related news! View all our mortgage news.
