How Will Fed Rate Cut Affect My Mortgage?

Today the Fed pulled a nice move and surprised everyone by dropping the rate by 50 basis points instead of the 25 basis points that the market had effectively already priced in. I was getting nervous immediately prior to the announcement - thinking that the market had probably priced in ~37 bp drop (some anticipating 50 and some anticipating 25) - thus a 25 point cut would’ve been a Negative.

 Fortunately, the Fed surprised me.

If you’ve got an Adustable Rate Mortgage, it’s time to consider moving over to a fixed-rate mortgage. Don’t pull the trigger right away though. The mortgage market will take a couple weeks to price this adjustment into the ratesheets.

Also, remember that this rate cut is unlikely to have any effect on your existing Adjustable Rate Mortgage if you are resetting soon.  Keep in mind that there are numerous indexes that are used for ARMs. Your ARM rate will be based on your Index (specified in your Note) plus the Margin - also spec’d in the Note.

….And Guess What Else….For those of you with LIBOR tied ARMS? LIBOR stands for “London Inter-Bank Offered Rate.”  It is based on rates that contributor banks in London offer each other for inter-bank deposits.  From a bank’s perspective, deposits are simply funds that are loaned to them.  So in effect, a LIBOR is a rate at which a fellow London bank can borrow money from other banks.  Rate calculations are complex as they incorporate variables such as time, maturity and currency rates. There are hundreds of LIBOR rates reported each month in numerous currencies.

IF YOUR MORTGAGE PAYMENTS ARE REALLY HURTING YOU - IF YOU CAN’T SLEEP AT NIGHT BECAUSE OF THE HOUSING BUBBLE AND AN IMMINENT RESET - THEN CHECK OUT THESE GUYS - THEY CAN HELP: