I think the Federal Reserve surprised a lot of us yesterday with the 1/2 point rate cut they chose. I, for one, thought they might trim the rate by 1/4%. Obviously, the Federal Reserve is concerned about how the mortgage crisis has affected the overall economy. And this is a good start. As we go forward, it's likely the Fed. will reduce rates again. Possibly with another 1/4 point cut at their next meeting in October followed by a 1/4 point cut by the end of the year.
The good news is for you borrowers who have adjustable rate loans. For example, if you have a home equity line of credit currently at 8 1/4%, your rate will go to 7 3/4%. If you have a credit card, the rate will probably go down. And if your home loan is on an adjustable rate, your rate will go down when it is eligible.
This does not mean we're out of the woods yet with all the changes in our industry. I know. Some of you may be tired of my somewhat bearish approach to things but I think it's important to be realistic. Number one, home loan rates are pretty good right now (currently at or near 6% on a 30 year fixed mortgage) so I don't expect to see a lot of improvement. Two, a refinance boom probably won't happen anytime soon. The candidates most likely to refinance at this point are the borrowers with adjustable rate mortgages. Unfortunately, quite a few borrowers probably won't be able to refinance when the time comes. As we all know, credit has been tightened severely and, with a myriad of mortgages set to adjust through June 2008, I don't see the lenders loosening the pursestrings in the near future. Also, keep in mind that adjustable rate mortgages are typically fixed for the first couple of years at a minimum so any Fed. rate cut doesn't help now. It will only help when the rate adjusts.
So again, I urge caution in thinking this is the panacea we've all been waiting for. We need to ride this one out a little longer. Remember this is a long-term game. Eventually things will improve and real estate will boom again. In the meantime, keep plugging. That's all you can do. Have a great day!
Paul
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