What the Feds Rate Cut Means To You
The Federal Reserve Bank cut the Fed Funds Rate this week. What does it mean for you as a homeowner? See what guest blogger Barbara Van Duyn, a mortgage planning specialist with First Priority Financial, has to say below. If you have any mortgage questions, you can reach her directly at Barbara@VanDuynGroup.com.
By now you’ve probably heard that the Federal Reserve Bank announced another reduction of the Fed Funds Rate by .250 percent on Wednesday, April 30th. That brings the FFR down to 2.00 percent. Although the FFR is used for bank to bank transactions, the lowering of this rate is good news for homeowners. Prime rate dropped by .250 and is now at 5.00 percent. So if your HELOC (home equity line of credit) hasn’t been converted to a fixed rate, your monthly payment will be dropping. Another huge benefit is for consumers who have Adjustable Rate Mortgages or ARMs tied to the LIBOR index. The LIBOR index moves in the same direction as the Fed Funds Rate. To illustrate, the FFR was at 5.25 percent in August of 2007 and the 1-year LIBOR was at 5.21 percent.
Fast forward six months, a series of seven Federal Reserve cuts later and the 1-year LIBOR is now at 2.98 percent. So if you have an ARM tied to LIBOR and scheduled to “reset” soon, your new interest rate may reset lower. You can figure this out by reviewing your mortgage “NOTE” to see which “INDEX” and “MARGIN” you have. The other option is to ask your mortgage professional to review your loan documents and help you understand how your ARM will perform. Until we meet again, take care. Barbara
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Posted by: real estate | June 05, 2008 at 10:52 PM