How Did The Rate Cut Affect Mortgages?

Posted by Richard on September 12, 2019

Technically, The Fed’s decision in July to lower interest rates by a quarter-point doesn’t directly affect mortgages. In reality, there are usually some things to keep in mind with any rate decrease or increase.

The Federal Funds rate is a measure of short-term borrowing, or the rate that banks use to lend money to each other. Mortgages are long-term notes.

If you have an adjustable-rate mortgage, you’ll probably see your interest rate go down when there’s a cut. To put that in perspective, a Bankrate article said that a HELOC (home equity line of credit) of $100,000 rises or falls about $250 a year with every change of 0.25 percent in interest rate, up or down. That works out to about $21 a month.

Additionally, variable-rate mortgages usually adjust annually, on their anniversary dates, and some don’t adjust at all for the first two to seven years.

However, this could be a good time to refinance into a fixed-rate mortgage and lock in the historically low rates. The average rate on a 30-year mortgage fell to 3.75 percent, down from a high of almost 5 percent in 2018.

Do a little math to figure out your savings over time, as well as closing costs, to determine whether this is a good move for you.

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