FED CUTS RATE

Historic Fed Move Cuts Both Ways for Borrowers

Hot on the heels of its surprise inter-session rate cut of 75 basis points last week, the Federal Reserve cut key interest rates again, the fifth straight cut since September 2007. In its statement last week, the Fed said: "it had decided to cut the Federal Funds Rate in view of a weakening of the economic outlook and increasing downside risks to growth." The economic data suggests the US is on the brink of recession, and the Fed is acting accordingly.

Who benefits from this cut?
If you have a loan that is directly tied to the Prime Rate, you will see an immediate benefit. Home Equity Line Of Credit (HELOC's), Variable Rate Loans and charge cards are the types of loans that will have an immediate interest rate reduction. These changes should reflect on the next statement.

What this means for long-term rates?
Long-term Mortgage rates, the lowest we have seen in years, could actually increase after Wednesday's cut, based on historical performance and recent trends. If you are waiting for long-term rates to go down even more, don't count on it. Your best chance to lock in the lowest rates since 2005 is now. By getting your application in process now will allow you to secure a low fixed-rate before it's too late.

What REALLY moves Mortgage rates?
Fixed-Rate Mortgage rates are not directly tied to the Fed Interest Rate moves. The Mortgage Rates actually tend to follow in the direction of other long-term Government Bond yields, like the 10-year Treasury Bond, which historically changes in accordance with the economic outlook and in advance of Fed actions. The performance of Mortgage Backed Securities, issued by Fannie Mae and Freddie Mac, is what really determines long-term Mortgage Rates.

How does the economic stimulus package fit into the picture?
The economic stimulus package from Congress and the White House could be a double-edged sword for Borrowers. Combined with recent Fed actions, the package could create inflation and bring about higher long-term interest rates.
On the positive side, Conforming Loan limits are likely to be raised from the current $417,000 to upwards of $625,000. Which means greater potential savings for purchase and refinance Clients who live in high-cost areas across the country.

What should you do next?
If you are unsure how the rate-cut or the proposed legislation affects your Mortgage, don't worry, you're not alone. Please give me a call at 763-557-5608 or stop in to the Plymouth Branch today. I will review your current Mortgage terms and work with you to see what can or should be done to make the most of your personal financial goals and needs.
I hope that this information has been helpful to you.
Thank you for your past business. I look forward to working with you again in the near future.
Regards,
Steven