What am I talking about?  How mortgage interest rates are driven.  I continue to see so-called experts, politicians, etc. stating that a Fed rate cut will help adjustable rate holders.  That is not the reality.

What drives mortgage rates are Mortgage Backed Securities (MBS).  These are the bonds that are a "package" of home loans that are sold on the secondary market.  Just as regular bonds trade, MBS trade on an open market and are subject to market forces, not what the Fed does with their rate.  In fact, many times mortgage rates move in the opposite direction as the Feds!

So, reality is very simply that the Fed cutting rates will not have a direct effect on mortgage interest rates.

That being said, some mortgage holders may benefit from a Fed rate cut.  If you hold a HELOC, that rate is typically tied to the Prime Rate, which is simply the Fed Funds Rate + 3 percent, you will see a small drop.  Also, anyone carrying a credit card balance will likely see a drop in that rate as well.

However, homeowners needing to refinance will not likely see a drop in the rate due to the Fed rate cut.  Adjustable Rate Mortgage (ARM) holders may not receive a benefit either.  Why?  Those rates are not directly tied to the Fed Funds Rate or even the Prime Rate.

If you are an ARM holder, take a look at what your index is doing.  LIBOR (London Interbank Offered Rate), which does typically follow the Fed rate, is actually  drifting higher right now.  A Fed cut may drop this slightly as well, so those coming due for an adjustment on a LIBOR based loan may benefit, but it is not a guarantee either.

Other indices used a lot are not determined by the Fed rate.  They are driven by economic data which shows inflationary pressures. 

So, if you are an ARM holder and you are coming due for an adjustment, take a look at your index and what is driving that rate.  Then look at your loan documents to see what your margin is.  Add the two together and you will have what your rate is about to become.

If you are looking to refinance, make sure you are dealing with a professional that is watching the Mortgage Backed Securities markets, and I mean in real time.  They can provide guidance on whether or not to lock or float your rate, potentially saving you a considerable amount of money.

Currently, you probably want to lock anything that is nonconforming as these loans are not trading favorably.  However, if you are seeking a conforming loan, you can check my Florida Mortgage Daily blog for my daily guidance.  Don't rely solely on my site or recommendations only though as your situation may require a different approach.