What’s the Fed’s cut mean for me?
The Federal Reserve lowered its federal funds to 3.5 percent from 4.25 percent, which impacts how much consumers pay on credit card debt, home equity lines of credit and auto loans. This marked the biggest one-day rate move by the central bank since it cut its discount rate by a full percentage point in December 1991, a period when the country was struggling to get out of a recession. The rate cut is designed to stimulate the economy, which includes the housing market, by:
Helping more individuals qualify for loans and increasing an individual’s purchasing power; and
Positively impacting home equity lines of credit
How will the rate cut affect consumers? The cut will affect consumers in a variety of ways:
Those who have home equity lines of credit that are tied to prime or short term Adjustable Rate Mortgages (ARM) could see an immediate reduction in their interest rate.
Those consumers who have adjustable rate mortgages that are tied to key indexes like the One Year Treasury Bill, 12-month Treasury Average and LIBOR Index may receive the benefit of this reduction as the indexes start to move lower in conjunction with lower rates.
Also this past week, we had an Economic Stimulus Package that was announced from our nation’s capitol which, in addition to cash payouts to most American’s, included plans for a temporary increase in the conforming loan amount. Conforming loans are currently set at $417,000 and the plan would increase the conforming loan limit to somewhere between $615,000 and $725,000 in high cost areas - for a specified amount of time.
So based on interest rates and the current state of the economy, is now a good time to buy? We believe this may be the time to buy a home, especially if owning a home is going to be a long-term commitment. Interest rates remain at attractive lows: this increases an individuals purchasing power and makes the mortgage payment more manageable.
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