Woohoo!! The Fed cut rates by a .500% yesterday!!

But how does that affect those of you looking to refinance your mortgage in Northern Virginia, Washington DC or Maryland? Or purchase using LOW rates? At the moment, not that much- sorry :=(.

Let’s make sure that we’re on the same page here, and I’d like to start with explaining the Fed real quick…when the Fed is cutting rates, those cuts do not directly correlate to lower mortgage rates. For instance, mortgage rates didn’t go down by .50% yesterday because the Fed cut rates by .50%. What the Fed is in actuality cutting, is the rate that they lend money to banks.

For DC Metro area homeowners with a HELOC (Home Equity Line of Credit) I am happy to say that there is immediate gratification! You will have a lower rate/payment because what the Fed rate is tied directly to is the Prime Rate. The Prime Rate is tied to your HELOC rate, and thus what your payment is based on. The Prime Rate is always 3.0% over the Fed rate, so since the Fed cut another .50% yesterday (and .750% last week) to 3.0%, the Prime Rate is now 6.0%. In fact, immediately following the Fed announcement yesterday mortgage rates actually went up slightly. Having said that, it is true that historically the lower the Fed Rate the lower mortgage rates, but that is not guaranteed, but in this current cycle should be assumed, and that’s what we want to watch.

It’s sure to be a volatile-bumpy ride, as we saw last week with the most dramatic 36 hour swing in mortgage rates that we’ve seen in recent memory. But, if you’re stomach can handle it I am increasingly confident that you will see 30 year fixed rates at or below 5% again.

(Let’s just hope I’m right)

Todd Murdock | Senior Mortgage Advisor | HomeFirst Mortgage Corp | 703.549.3400

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