Historic Fed rate Cut Will Help this Market Big…
January 22nd, 2008 by dirkknudsen
Fed’s interest-rate cuts will benefit ARM, HELOC borrowers
Effect on long-term rates remains to be seen
Tuesday, January 22, 2008
The unscheduled and dramatic cut in short-term interest rates announced today by the Federal Reserve will provide immediate relief for borrowers with home-equity loans or facing interest-rate resets, mortgage market experts say.
But long-term rates — which were at 2 1/2-year lows before today’s 75-basis-point reduction in the discount rate and the target for the federal funds overnight rate — could move in the other direction if bond market investors get nervous about inflation.
For now, the Fed seems to have decided that the threat of a recession far outweighs the risk of inflation, making in a single day cuts in short-term rates some observers had expected would be stretched out over months.
“Just a few weeks ago, the consensus was that the Fed would cut no more than 75 basis points, and 3.25 percent would be trough,” said Freddie Mac’s chief economist Frank Nothaft. “We’re there already. So are we at the low point? It’s really hard to say.”
Nothaft said the Federal Reserve’s Open Market Committee could cut rates again when it holds its scheduled meeting Jan. 29-30. Or its members may want to wait and see how to today’s dramatic move affects economic indicators.
The rate cuts are “certainly good news for people who have mortgages, or are shopping for a mortgage,” Nothaft said. For those with adjustable-rate mortgages (ARMs) indexed to the prime rate or home-equity lines of credit (HELOC) loans, “this shows up right away in terms of lower interest rates,” as banks follow suit and lower the prime rate to 6.5 percent. For ARM borrowers facing interest-rate resets, Nothaft said, that translates into a smaller increase in payments, and “maybe even a decline.”
Get the rest fo the story: http://www.inman.com/hstory.aspx?ID=65863
April 30th, 2008 at 11:32 pm
This was a great article
Thanks