Just an FYI...the fed rate drop does not affect new mortgages.
- Thread starter alkemyst
- Start date
Capt Caveman
Lifer
- Jan 30, 2005
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Capt Caveman
Lifer
- Jan 30, 2005
- 34,543
- 651
- 126
Starting rates on adjustable-rate mortgages will drop because they're more sensitive to Fed rate moves. Jumbo mortgages will be next to lower rates as the Fed rate cut allows for more bank-to-bank lending. This lending will relieve the jammed credit markets that have made it hard to find a jumbo mortgage in the last couple of months.
- Feb 13, 2001
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Like I have said the fed rate cut is not tied to mortgages. You are all talking out your asses and on things that COULD possibly trickle down to the mortgage rates. If inflation goes up because of this though rates will climb.
Some things the fed rate cut does affect directly are: variable rate school loans, credit cards/unsecured loans, many equity/lines of credit, closed adj rate mortgages that are tied to PRIME. It also lowers your yield on savings/CD's moving forward and the like.
This is an accurate article from the Wall Street Journal as opposed to many 'financial' sites posting wishful thinking.
What the Rate Cut Means for You
Fed's Half-Point Move Likely to Trim Payments on Credit Cards,
Home-Equity Lines, but Offer Scant Relief on Certain Mortgages
By JANE J. KIM and RUTH SIMON
September 19, 2007; Page D1
Consumers should soon start feeling the impact of yesterday's Fed rate cut in the form of lower borrowing costs and stingier savings rates. But the rate cut doesn't offer much help for the key problems bedeviling many mortgage borrowers.
The Federal Reserve said it lowered short-term interest rates by half a percentage point, to 4.75%, to combat the effects of a weaker housing market and tighter credit on the broader economy. The steep reduction in the Fed funds rate surprised many on Wall Street who expected a more modest rate cut. Stocks rose sharply after the Fed's announcement, with the Dow Jones Industrial Average gaining 335.97 points, or 2.5%, to 13739.39.
RATE EXPECTATIONS
Here's how the Fed's rate cut could affect your wallet:
? Expect lower rates on home-equity lines of credit and some credit cards.
? Brace yourself for lower yields on money-market funds and savings products.
? Borrowers with adjustable-rate mortgages tied to Libor aren't likely to get immediate relief.
? Fixed-rate mortgage rates could move higher if inflation worries grow.
The rate cut should reduce payments on many home-equity lines of credit, credit cards and some car loans. Perversely, however, some economists say it could lead to higher rates on fixed-rate mortgages down the road if bond markets expect the Fed move will spur higher economic growth or inflation.
There also is likely to be little immediate relief for borrowers with certain types of adjustable-rate mortgages. That's because the rates on some of these loans are tied to the London interbank offered rate, or Libor, which recently jumped sharply above the Fed funds rate because of the continuing credit crunch in the markets. Libor, which has drifted downward recently, is an interest rate charged by banks for short-term loans to each other.
"If Libor doesn't come down, there is no relief" for many mortgage borrowers, says James Bianco, president of Bianco Research LLC, a market-research firm in Chicago.
Borrowers who should see immediate benefits from the Fed cut are those holding loans tied to U.S. banks' prime rate. Consumers can contact their lenders to inquire how their rates are calculated. Many banks cut their prime rates by half a percentage point after yesterday's Fed move.
Here is a look at what the Fed's action means for consumers:
? Homeowners. The rate cut is good news for borrowers with home-equity lines of credit, and savings could show up as soon as the next monthly statement. Borrowers looking for a new fixed-rate home-equity loan could also see lower rates. There are likely to be regional differences, with lenders most likely to cut rates on these loans in areas where the housing market is healthy and the local economy is robust, says Doug Duncan, chief economist of the Mortgage Bankers Association. Before the Fed's latest move, rates on home-equity lines averaged 8.72%, while home-equity loans averaged 8.29%, according to HSH Associates.
But in a twist, the Fed cut could boost rates down the road for 30-year fixed-rate mortgages. These rates are typically influenced by rates on 10-year Treasurys, which have moved lower recently in anticipation of a quarter-point cut in rates and because of a flight to quality in bond markets. But if markets expect a higher level of economic growth than previously anticipated, or a pickup in inflation, borrowers could see "some modest increase in fixed-rates going forward, though not necessarily immediately," Mr. Duncan says.
Recent news has been mixed for borrowers with adjustable-rate mortgages. Borrowers with ARMs that are tied to Treasury averages have benefited from a recent decline in rates. For those who are facing their first rate reset on Oct. 1, "that reset will be less painful than it would have been had it taken place a couple months ago," says Greg McBride, a senior financial analyst with Bankrate.com.
But higher borrowing costs may still be in the offing for homeowners whose adjustables are tied to Libor. Libor is frequently used to set rates for subprime adjustables, loans made to borrowers with scuffed credit. As for non-subprime ARMs, roughly half of these originated in recent years are also tied to Libor, estimates Keith Gumbinger, a mortgage analyst with HSH Associates. Borrowers can determine which index their adjustable is tied to by checking their loan documents.
The rate cut isn't likely to do much for the biggest problem facing the mortgage market: a liquidity crunch that has made it tougher for many borrowers to get a loan. "People have been characterizing this as a bailout for housing, but I don't think that's accurate," says Mr. Duncan of the Mortgage Bankers Association. The rate cut is "much more about the broader economy," while the mortgage market's troubles are "all about credit and property values."
? Savers. Savers could soon see lower payouts on their savings accounts, certificates of deposit and money-market mutual funds. In fact, some banks have already started to reduce their rates or scale back their deals. Bank of America Corp., for instance, recently shortened the maturities on its promotional CDs paying 5% to four months from eight months.
Nevertheless, banks are going to be reluctant to cut rates before their competitors, in part because consumer deposits remain one of the cheapest sources of funds available for the banks, says Bankrate.com's Mr. McBride. In fact, average CD rates have barely budged in recent months with yields on five-, three- and one-year CDs currently at 4%, 3.77% and 3.76%. "That is very uncharacteristic," since CD yields normally move well in advance of a Fed action, he says. "Savers are getting a break."
Average yields on money-market mutual funds, which have been hovering at 5% for about a year, are likely to drop to about 4.5% in the next month, says Pete Crane of Crane Data LLC. But part of the fall in yields may be counteracted by some managers' moves to buy higher-yielding asset-backed commercial paper, he says. As a result, there may be a benefit to shopping around since money managers can differentiate their funds' performance by investing in the higher-yielding securities.
? Credit Cards. Many credit-card customers should soon see some relief. About 85% of all credit cards carry variable rates. But many holders of these cards will see a benefit only if their current rate exceeds any floors established by the issuers, typically around 14% to 15%, below which their rates can't fall. Today, most interest rates are in the 18%-to-19% range.
Since most issuers adjust their pricing on a monthly basis, about half of all variable-rate cards should see an adjustment in October, with the rest in November, says Robert McKinley, chief executive of CardWeb.com. "Consumers could find some money in their pockets in about a month." The half-percentage-point drop in rates should result in a savings of about $30 a month for the typical household, which carries a median credit-card debt of $7,000, he says.
? Auto Loans. A rate cut isn't likely to have a big impact on new-car loans in part because more than half of all auto loans are already offered at reduced rates due to heavy manufacturer incentives, says Art Spinella, president of CNW Marketing Research Inc. But the Fed's move could make it cheaper to get a used-car loan because many people turn to banks and credit unions to finance their purchase, he says.
? Student Loans. Students with private, variable-rate student loans pegged to the prime rate may see their rates adjust more quickly than borrowers with loans tied to Libor. (Loans pegged to Libor or the prime rate are split about equally.)
But that doesn't automatically mean that borrowers should switch to prime-based loans. Historically, loans pegged to Libor have tended to yield a slightly lower rate than loans tied to prime over the life of the loan, says Mark Kantrowitz, publisher of FinAid.org.
Some things the fed rate cut does affect directly are: variable rate school loans, credit cards/unsecured loans, many equity/lines of credit, closed adj rate mortgages that are tied to PRIME. It also lowers your yield on savings/CD's moving forward and the like.
This is an accurate article from the Wall Street Journal as opposed to many 'financial' sites posting wishful thinking.
What the Rate Cut Means for You
Fed's Half-Point Move Likely to Trim Payments on Credit Cards,
Home-Equity Lines, but Offer Scant Relief on Certain Mortgages
By JANE J. KIM and RUTH SIMON
September 19, 2007; Page D1
Consumers should soon start feeling the impact of yesterday's Fed rate cut in the form of lower borrowing costs and stingier savings rates. But the rate cut doesn't offer much help for the key problems bedeviling many mortgage borrowers.
The Federal Reserve said it lowered short-term interest rates by half a percentage point, to 4.75%, to combat the effects of a weaker housing market and tighter credit on the broader economy. The steep reduction in the Fed funds rate surprised many on Wall Street who expected a more modest rate cut. Stocks rose sharply after the Fed's announcement, with the Dow Jones Industrial Average gaining 335.97 points, or 2.5%, to 13739.39.
RATE EXPECTATIONS
Here's how the Fed's rate cut could affect your wallet:
? Expect lower rates on home-equity lines of credit and some credit cards.
? Brace yourself for lower yields on money-market funds and savings products.
? Borrowers with adjustable-rate mortgages tied to Libor aren't likely to get immediate relief.
? Fixed-rate mortgage rates could move higher if inflation worries grow.
The rate cut should reduce payments on many home-equity lines of credit, credit cards and some car loans. Perversely, however, some economists say it could lead to higher rates on fixed-rate mortgages down the road if bond markets expect the Fed move will spur higher economic growth or inflation.
There also is likely to be little immediate relief for borrowers with certain types of adjustable-rate mortgages. That's because the rates on some of these loans are tied to the London interbank offered rate, or Libor, which recently jumped sharply above the Fed funds rate because of the continuing credit crunch in the markets. Libor, which has drifted downward recently, is an interest rate charged by banks for short-term loans to each other.
"If Libor doesn't come down, there is no relief" for many mortgage borrowers, says James Bianco, president of Bianco Research LLC, a market-research firm in Chicago.
Borrowers who should see immediate benefits from the Fed cut are those holding loans tied to U.S. banks' prime rate. Consumers can contact their lenders to inquire how their rates are calculated. Many banks cut their prime rates by half a percentage point after yesterday's Fed move.
Here is a look at what the Fed's action means for consumers:
? Homeowners. The rate cut is good news for borrowers with home-equity lines of credit, and savings could show up as soon as the next monthly statement. Borrowers looking for a new fixed-rate home-equity loan could also see lower rates. There are likely to be regional differences, with lenders most likely to cut rates on these loans in areas where the housing market is healthy and the local economy is robust, says Doug Duncan, chief economist of the Mortgage Bankers Association. Before the Fed's latest move, rates on home-equity lines averaged 8.72%, while home-equity loans averaged 8.29%, according to HSH Associates.
But in a twist, the Fed cut could boost rates down the road for 30-year fixed-rate mortgages. These rates are typically influenced by rates on 10-year Treasurys, which have moved lower recently in anticipation of a quarter-point cut in rates and because of a flight to quality in bond markets. But if markets expect a higher level of economic growth than previously anticipated, or a pickup in inflation, borrowers could see "some modest increase in fixed-rates going forward, though not necessarily immediately," Mr. Duncan says.
Recent news has been mixed for borrowers with adjustable-rate mortgages. Borrowers with ARMs that are tied to Treasury averages have benefited from a recent decline in rates. For those who are facing their first rate reset on Oct. 1, "that reset will be less painful than it would have been had it taken place a couple months ago," says Greg McBride, a senior financial analyst with Bankrate.com.
But higher borrowing costs may still be in the offing for homeowners whose adjustables are tied to Libor. Libor is frequently used to set rates for subprime adjustables, loans made to borrowers with scuffed credit. As for non-subprime ARMs, roughly half of these originated in recent years are also tied to Libor, estimates Keith Gumbinger, a mortgage analyst with HSH Associates. Borrowers can determine which index their adjustable is tied to by checking their loan documents.
The rate cut isn't likely to do much for the biggest problem facing the mortgage market: a liquidity crunch that has made it tougher for many borrowers to get a loan. "People have been characterizing this as a bailout for housing, but I don't think that's accurate," says Mr. Duncan of the Mortgage Bankers Association. The rate cut is "much more about the broader economy," while the mortgage market's troubles are "all about credit and property values."
? Savers. Savers could soon see lower payouts on their savings accounts, certificates of deposit and money-market mutual funds. In fact, some banks have already started to reduce their rates or scale back their deals. Bank of America Corp., for instance, recently shortened the maturities on its promotional CDs paying 5% to four months from eight months.
Nevertheless, banks are going to be reluctant to cut rates before their competitors, in part because consumer deposits remain one of the cheapest sources of funds available for the banks, says Bankrate.com's Mr. McBride. In fact, average CD rates have barely budged in recent months with yields on five-, three- and one-year CDs currently at 4%, 3.77% and 3.76%. "That is very uncharacteristic," since CD yields normally move well in advance of a Fed action, he says. "Savers are getting a break."
Average yields on money-market mutual funds, which have been hovering at 5% for about a year, are likely to drop to about 4.5% in the next month, says Pete Crane of Crane Data LLC. But part of the fall in yields may be counteracted by some managers' moves to buy higher-yielding asset-backed commercial paper, he says. As a result, there may be a benefit to shopping around since money managers can differentiate their funds' performance by investing in the higher-yielding securities.
? Credit Cards. Many credit-card customers should soon see some relief. About 85% of all credit cards carry variable rates. But many holders of these cards will see a benefit only if their current rate exceeds any floors established by the issuers, typically around 14% to 15%, below which their rates can't fall. Today, most interest rates are in the 18%-to-19% range.
Since most issuers adjust their pricing on a monthly basis, about half of all variable-rate cards should see an adjustment in October, with the rest in November, says Robert McKinley, chief executive of CardWeb.com. "Consumers could find some money in their pockets in about a month." The half-percentage-point drop in rates should result in a savings of about $30 a month for the typical household, which carries a median credit-card debt of $7,000, he says.
? Auto Loans. A rate cut isn't likely to have a big impact on new-car loans in part because more than half of all auto loans are already offered at reduced rates due to heavy manufacturer incentives, says Art Spinella, president of CNW Marketing Research Inc. But the Fed's move could make it cheaper to get a used-car loan because many people turn to banks and credit unions to finance their purchase, he says.
? Student Loans. Students with private, variable-rate student loans pegged to the prime rate may see their rates adjust more quickly than borrowers with loans tied to Libor. (Loans pegged to Libor or the prime rate are split about equally.)
But that doesn't automatically mean that borrowers should switch to prime-based loans. Historically, loans pegged to Libor have tended to yield a slightly lower rate than loans tied to prime over the life of the loan, says Mark Kantrowitz, publisher of FinAid.org.
Adjustable rate mortgages. 1st or second.
This move DIRECTLY DEDUCTS .5% on my piggy back, interest only loan.
Directly deducts .5%. I will see this move on my next statement as it is DIRECTLY based on prime rate.
You can quote google all you want, but i'm posting reality. This is a great move, outpace it with the roaring economy and you can make it big time.
Capt Caveman
Lifer
- Jan 30, 2005
- 34,543
- 651
- 126
- Feb 13, 2001
- 83,769
- 19
- 81
Just to help you: my topic summary: It may improve your current adj rate
That is a currently closed loan. Today on a fixed rate loan there is no break from the PRIME change and there is a significant possibility it could raise those rates.
BTW that was not a 'google' quote although it's probably there now, that is a direct industry email the source which I included was the Wall Street Journal. I am part of a national top 10 mortgage / home builder enterprise, there is a lot of misinformation in the news more than likely to sell papers/mags.
It's probably useless to go further here, but rates are not what's keeping people from buying houses today. People are avoiding adj. rates and 'fake' loan products like option ARM's and the like designed for investors. The fixed rate mortage is at an extremely good rate.
What's killing things is people that got themselves into adj. rate mortgages with crazy teaser rates, re-financed their homes when prop. values skyrocketed and now have insanely high rates on lines of credit, etc.
The main kicker to this is when you put more money back into the people's hands inflation can be affected. Inflation has a pretty direct impact on good loan rates. Prime doesn't really impact the type of loans the good credit borrower sees. It may sweeten the deal on oppressive mortgages that at least gets one into a home, but for your high 600+ credit score people it's a non-issue.
The treasury bill has historically been what controls fixed rate mortgages/jumbos. However; with the fear in the market the trends are off.
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