Cuts like a Knife . . . 0.75 point Fed rate cut

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This morning, marketwatchers, traders and the general public were caught off-guard by a surprise 0.75% rate cut by the Feds.  This rate cut is the largest since 1991 and was done to help spur on a slumping US economy and ease fears of an economic recession.  The inter-meeting cut (and the size of the rate cut) is an indication of the seriousness and need for the Feds to step in and take action.  The Federal Funds rate has a direct impact on the rate at which banks borrow and lend money, and this morning’s announcement caused banks to lower prime rate — a rate mainly used to determine rates for 2nd mortgages, home equity lines of credit, credit cards and car loans.

On the news, the stock market started the day way down, pushing money in to the bond market (pushing the price of mortgage backed securities up . . . which may push mortgage interest rates down — which is unusual after a Fed cut).  Because most wholesale lenders don’t publish the day’s rate sheets until 10 AM or 11 AM, the real effect of today’s announcement on mortgage rates has yet to be seen.  AND, the lasting effects of today’s cut (post-market-knee-jerk) may take a day or two to sort out.

For now, I will stand by my refinance advice from my previous post for locking-in your rate and for adjustable rate mortgages (see below).

Whatever you do . . . “don’t take it all for granted, cause how were you to know . . . that rates would not always be-eeeee so low . . . yeah, cuts like a knife.”

Let’s hope (for the sake of the US economy and for mortgage rates) that the feeling is right.  And for the sake of the readers of “the Mortgage Blog”, lets hope that this music-lyric thing ends soon.  ha!

Jeffrey Pinkerton is a Mortgage Consultant and President of Hillside Lending, LLC and writer for “the Mortgage Blog.”  Hillside Lending seeks to provide mortgage brokerage services with the highest standards of service, care, honesty, integrity and value; concentrating on owner-occupied, residential financing.  For more information about available programs and interest rates, please visit www.hillsidelending.com.

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