How Does a Fed Cut Affect Home Mortgage Rates?

How Does a Fed Cut Affect Home Mortgage Rates?
By Kristin Abouelata

You hear quite a bit lately that "the Fed is cutting the interest rate." Maybe you've been considering a refinance, and you're waiting to move forward till the Fed takes action again. But be smart about waiting and watching. A Fed cut doesn't directly affect long term rates (for instance a 30 year fixed mortgage), but it does impact long term mortgage rates. The problem is the impact might not have the result you've been waiting for.

Who is the Fed? Well, it's really the Federal Reserve. And when the Fed cuts rates, it usually cuts the Fed Funds Rate, which is the rate banks lend each other money. However, when the Fed lowers the Fed Funds Rate, Prime Rate, the rate banks give their best customers, usually drops as well. Ok, that's great. But what does that really mean to the average person on the street? It means that anything that has an interest rate tied to Prime is directly affected by the Feds' rate cut. Typically, these are short term loans. For instance: a credit card or a Home Equity Line of Credit (HELOC). In general, these rates decline when the Fed lowers rates. On the flip side, a Fed rate cut means your savings will perhaps not yield as much interest and your CD (certificate of deposit) won't be at such a great rate. So, it's not all good.

Why aren't mortgages directly affected? Because mortgage rates are typically longer term rates and are influenced by buyers and sellers in the bond market. Daily movements in the bond market cause mortgage rates to change. That's why you might get a quote from a loan officer on Tuesday, and on Wednesday, your quoted interest rate has increased .125%. The Fed lowers rates to help stimulate the economy. Ultimately a healthy economy is good for the real estate market. Jesse Lehn, Senior Vice President for Mortgage Investors Group, believes, "...a liquid real estate market is beneficial for the mortgage market and that keeps rates competitive." So, when the Fed lowers rates, indirectly it can help mortgage rates, but there is no direct correlation.

Another misconception is that mortgage rate changes occur in direct relation to when a Fed rate cut happens. In actuality, most mortgage rate changes, positive or negative, occur regardless of whether the Fed is actually meeting. That's because the mortgage market anticipates what the Fed is going to do.

A good loan officer should have their finger on the pulse of the market, but again it's a gamble. Remember to have a target interest rate in mind if you want to lock a loan but are watching the market. Trying to lock an interest rate on the day the mortgage rates have reached their lowest point in a year is like trying to get a royal flush in poker. It happens, but it's not a realistic goal. It just means you were lucky. Just stick to your home financing goals and consider the big picture, and you'll be fine.

Let My Experience Work For You!

Email your home loan financing questions to Kristin Abouelata, Home Loan Specialist with Mortgage Investors Group, at question@kristinmortgage.com or call direct: (865) 567-0113 Toll Free: 1-800-489-8910. For more information visit her website at http://www.kristinmortgage.com Home Loans Plain Talk.

Article Source: http://EzineArticles.com/?expert=Kristin_Abouelata
http://EzineArticles.com/?How-Does-a-Fed-Cut-Affect-Home-Mortgage-Rates?&id=940500

College Graduation: Should You Go to Europe or Buy House?

You’ve graduated college and start your new job in a month. With graduation cash to burn, should you go on vacation or invest in a home?

Congratulations! You’ve done it. You’ve spent all that time at the library, sweated out those exams and are actually going to walk down the aisle in cap and gown. Not to mention, you have your real first job! You went through the recruitment center at school and someone actually hired you. What an exciting time in your life! Now, what to do with all that graduation cash you’re raking in? Should you buy a Eurail pass and plan a back pack trip to Europe? Or, better yet, should you buy a house?

Wow. Buy a house? Aren’t you too young? That sounds awfully grown up, doesn’t it? Personally, I probably would go to Europe if I were a recent graduate with a fist full of graduation dollars. I never really thought things through when I was young and adventurous. I’m paying for it now. But, if that opportunity had presented itself to me, I would like someone to have made me think twice about it. Besides, the dollar isn’t doing so well in Europe right now. It’s sound advice to which even I would have listened at young age.

Recent college graduates can qualify for a home loan, but it depends on a few things. A big hurdle is a down payment. There are 100% financing opportunities out there, but they aren’t as readily negotiated as they formerly have been. What better graduation gift to ask for than a home down payment? Also, I’d be willing to bet that Aunt Ginger may be more generous with her checkbook if she knows you’re saving to buy a house and not a keg of beer. Typically, you need to have 3% of your home purchase price saved, and can negotiate for the seller to pay some if not all of the closing costs. So, if you were buying a $100,000 home, you should have about $3,000 in your bank account. That’s a good starting point.

How’s your credit? Like most college kids, do you already have a credit card in your name? I hope you’ve been paying it on time. Good credit is a pre-requisite for any mortgage these days. You aren’t too young to establish good credit. If you have none, open a credit card, put your gas on it each month, and then pay it off each month. Before you know it, you will have established a good credit history. Most of you already have taken these steps.

Typically, a mortgage lender will approve a recent college graduate for a loan if their new income supports their debt, the aforementioned items aren’t an issue and they are on the job by the day of closing. In fact, if you have a contract for employment, you may even be able to close on a home loan prior to starting your new job, but you better have a solid contract and plans to start very soon (providing your first pay stub after closing is common)! In addition, you will also have show evidence to your lender that you’ve been in school for the past few years. Typically a copy of your diploma will suffice. If you don’t have one of those nifty wallet sized copies, you can bring your actual diploma to your lender and have it photocopied. (I’ve had to unroll them from their packaging tube and gingerly lay them out on the copy glass, careful not to mar them).

There are many arguments to why buying a home is smarting then renting. You aren’t “throwing away” money in rent, you’re investing for your future, and if your loan program is one that lets you rent out a bedroom to a buddy, you can actually put a little cash back into your pocket. And if you are able to put a little moola aside quickly, maybe deferring that European trip isn’t such a bad idea after all!
Let My Experience Work For You!
Email your home loan financing questions to Kristin Abouelata, Home Loan Specialist with Mortgage Investors Group, at question@kristinmortgage.com or call direct: (865) 567-0113 Toll Free: 1-800-489-8910. For more information visit her website at http://www.kristinmortgage.com/ Home Loans Plain Talk.

How Does a Fed Cut Affect Home Mortgage Rates?

You hear about “Fed Rate Cuts” all the time. How does it really affect your mortgage rate, or does it?

You hear quite a bit lately that “the Fed is cutting the interest rate.” Maybe you’ve been considering a refinance, and you’re waiting to move forward till the Fed takes action again. But be smart about waiting and watching. A Fed cut doesn’t directly affect long term rates (for instance a 30 year fixed mortgage), but it does impact long term mortgage rates. The problem is the impact might not have the result you’ve been waiting for.

Who is the Fed? Well, it’s really the Federal Reserve. And when the Fed cuts rates, it usually cuts the Fed Funds Rate, which is the rate banks lend each other money. However, when the Fed lowers the Fed Funds Rate, Prime Rate, the rate banks give their best customers, usually drops as well. Ok, that’s great. But what does that really mean to the average person on the street? It means that anything that has an interest rate tied to Prime is directly affected by the Feds’ rate cut. Typically, these are short term loans. For instance: a credit card or a Home Equity Line of Credit (HELOC). In general, these rates decline when the Fed lowers rates. On the flip side, a Fed rate cut means your savings will perhaps not yield as much interest and your CD (certificate of deposit) won’t be at such a great rate. So, it’s not all good.

Why aren’t mortgages directly affected? Because mortgage rates are typically longer term rates and are influenced by buyers and sellers in the bond market. Daily movements in the bond market cause mortgage rates to change. That’s why you might get a quote from a loan officer on Tuesday, and on Wednesday, your quoted interest rate has increased .125%. The Fed lowers rates to help stimulate the economy. Ultimately a healthy economy is good for the real estate market. Jesse Lehn, Senior Vice President for Mortgage Investors Group, believes, “…a liquid real estate market is beneficial for the mortgage market and that keeps rates competitive.” So, when the Fed lowers rates, indirectly it can help mortgage rates, but there is no direct correlation.

Another misconception is that mortgage rate changes occur in direct relation to when a Fed rate cut happens. In actuality, most mortgage rate changes, positive or negative, occur regardless of whether the Fed is actually meeting. That’s because the mortgage market anticipates what the Fed is going to do.

A good loan officer should have their finger on the pulse of the market, but again it’s a gamble. Remember to have a target interest rate in mind if you want to lock a loan but are watching the market. Trying to lock an interest rate on the day the mortgage rates have reached their lowest point in a year is like trying to get a royal flush in poker. It happens, but it’s not a realistic goal. It just means you were lucky. Just stick to your home financing goals and consider the big picture, and you’ll be fine.

Let My Experience Work For You!
Email your home loan financing questions to Kristin Abouelata, Home Loan Specialist with Mortgage Investors Group, at question@kristinmortgage.com or call direct: (865) 567-0113 Toll Free: 1-800-489-8910. For more information visit her website at www.kristinmortgage.com Home Loans Plain Talk.