RATE CUT!!!

The Fed just did something they haven't done since 2001 - changed the Federal funds rate between meetings!  Not only that, but they dropped it from 4.25% to 3.5%.

Just to put into perspective how serious this is, I should point out that the next meeting of the Fed is a mere week away.  But their concerns about the direction of the global economy were such that they held an emergency video conference last night and voted 8-1 to drop the rate 3/4 of a percent effective immediately.  If you've been reading for a while, you know what a departure from the norm this behavior is.  The Fed has been very conservative up until now, but lately they're talking very seriously about aggressive rate cuts.  Yes, they're hinting that more cuts may be on their way.

While this raises concerns for the overall economy, and makes me wonder what the Fed sees in our future, I cannot help but be happy about the rate cut as this is a huge boon to home buyers.  Now, it may take a couple weeks for the rate changes to filter down to home loan rates, but let's see what a cut like that could mean:

Say you're looking at a home and need a $400,000 loan to get it.  If the interest rate on a fully-amortized 30-year loan was 6%, then your monthly payment (P&I) would be $2400.  Now, let's say that the loan rates were to follow the Federal Funds rate, and come down 3/4%.  That same $400K loan, at 5.25% interest, would have a fully-amortized payment of $2208.  Think that makes a home a bit more affordable?  Just perhaps?  It's like getting an 8% reduction in the price!