The Federal Funds rate is what banks charge each other for overnight loans, which allows banks to lower interest rates to their best customers. Chairman Bernanke lowered this rate by ¾ of a point on Tuesday 1/22, which was the largest drop in 18 years. There is even talk that the fed may drop rates once again when they meet next week. Bear in mind there is not just one rate there are many! Click here for a list of major rates.

Many people incorrectly assume the federal funds rate is directly connected to home loan rates. The health & movement of Wall Street is a better indicator of where home loan rates are. As the stock market rises, investors look to place money in shorter-term stocks, so rates rise. When stocks fall, investors look to place money in more secure long-term investments like home loans. The movement of the ten-year Treasury note highly corresponds with home loan rates. What may cause the common misconception that links federal rates to home loan rates is this scenario: when the market is down and home loan rates are subsequently down, the fed sometimes drops rates to spur the economy - that is why the federal rates and home loan rates do sometimes correspond.

However, the drop in federal rates does have an immediate effect on people who have adjustable rate mortgages or equity lines tied to major indexes like the LIBOR index or Prime. These rate cuts may help those most in danger of foreclosure with lower monthly payments.

So, Wall Street and many foreign markets took big plunges this week after a poor fourth quarter in 2007, which is why home loan rates are currently near all-time lows. With slowing economies around the world, we may see home loan rates once again at record lows in coming months. All of this, of course, is in response to economic woes in the US and around the world. The Fed hopes that lowering rates will stimulate spending and avoid or lessen a possible recession.

So how can I benefit from these market conditions?

1. Buy a Home: If you are thinking of buying a home, you have an excellent opportunity to not only lock in some of the best rates in history, but our local housing market is near the end of a 2.5 year correction. Find San Diego Homes for sale at my website.
2. Refinance a Lo­an: If you own a home and want to stay in it, contact a lender to discuss refinancing. This only applies if your home is worth more than what you currently owe the bank. Call me at 858-761-1707 for a list of the best lenders in town.
3. Get An Equity Line: If you own a home and have significant equity, you can pull money out with an equity line of credit to do upgrades, repairs, buy a car, or take a 2-month vacation around the world.

Adam Pascu, San Diego Realtor