Fed Rate Cut: It Won’t Change Marin Mortgage Rates, But It Will Improve The Market
The Fed’s surprise rate cut last week of .75 points won’t affect mortgage rates, at least in the short term. But it will be a big net positive for the market.
There will be three big effects on consumers that will positively affect house-buying activity.
1. Home Equity Loans. If you have one and it’s linked to prime, you’re monthly payment just went down substantially. All those 100% finance deals a few years ago? Well, 20% of that is probably a home equity line, and everyone just got a break.
2. Adjustable rate mortgages. Again, many of these are indexed to LIBOR, which is linked to this rate. So anyone with an adjustable indexed to this rate just got a huge break on what the adjusted rate will be. Our in-house mortgage broker estimated it could be of a magnitude of two interest rate points. That’s huge - it means more people will be able to hang on, and won’t end up in foreclosure.
3. Credit card debt. Anyone not paying off the balance every month will now pay less on a monthly basis.
All in all, the net positives here are potentially very large. Combined with the lowest interest rates since 2004 for mortgages, it would be surprising not to see the market heat up a bit soon.
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