How the Fed Rate Cut Affects Mortgages

Posted January 22, 2008

Will the Fed Rate Cut Change Mortgage rates?

Ben Bernanke Diana Olick from CNBC wrote an interesting article about this. Here’s the highlights:

The 30 Year Fixed mortgage rate is NOT tied to short-term treasuries.
Today’s cut will affect short term ARMS, but not by much.
This rate cut will not stop the foreclosures that are about to happen.

Diana made a couple statements in addition to these facts, one I agree with and one that is just false.

She stated since the rate cut does affect short term loans such as home equity lines, people will be tempted to start tapping into the equity they have in their homes. She cautions that they should hold off on that and focus on paying off other debt. I AGREE 100%. Our debt load as a nation is out of control.

She also said that stated income is dead and there are no more 100% loans. Well, here she is just wrong. While stated income as we have known it is for the most part gone, there are lenders out there that do not require any verification of income. However, you will need stellar credit and equity in the deal to pull this off. And 100% mortgage loans are not dead! Not by any means!

100% financing is still available. You will need a better score than the past couple years have required. But in many cases a 620 score will get you in, albeit with a slightly higher rate. Even still, with programs like the Flex100 and Home Possible and My Community Mortgage, zero down mortgage loans still exist. And while FHA requires 3% down, there are still ways to fund FHA loans with no real money out of the buyer’s pocket. So with so many options still out there, you can buy a home with nothing down.

The bottom line here is that the Fed rate cut will have some impact, but not on the mainstream standard 30 year mortgage. However, mortgage rates are extremely low and selection in homes for sale are very high. So if you are considering buying a home or refinancing your current mortgage, now is the best time to do it!