Last week, the U.S. Federal Reserve lowered interest rates for the first time in over a decade. The decrease is for 25 basis points or a quarter of a percent (0.25%). This is the first time we’ve seen a decrease since 2008. In January, the Fed announced they would hold off interest rate hikes as 2018 had four consecutive months of increases. As of July, the federal funds rate has been reduced.
How will this interest rate cut affect you?
Buying a home, a car, and using credit cards generally involve a loan with interest. A lower interest rate means it costs less to borrow money for said purchases. In this particular instance, the Fed reduced the federal funds rate, which is what banks and financial institutions charge one another for short-term borrowing. While this in and of itself won’t affect most consumers unless they are doing overnight borrowing, this will still affect everyday borrowing and saving rates.
If you’re looking to purchase a home, or currently have an ARM or home equity loan, these lower rates may affect you.
For those currently searching for a home and looking at fixed-rate mortgages, you might not see a change in your rates, at least not yet. Fixed mortgage rates have already declined, so the chances of them going much lower due to this Fed interest rate decrease are low.
Greg McBride, the chief financial analyst for Bankrate.com, says, “Mortgage rates are tied to long-term rates, so they move well in advance. . . Any further movement in mortgage rates will be tied to the outlook ahead,” according to this NYT article. Lawrence Yun, the chief economist at the National Association of Realtors, agrees.
However, those who have variable-rate mortgages, home-equity loans, and even commercial real estate loans will benefit because they are based on short-term rates. According to Yun, “These low-interest rates will partly help with housing affordability over the short-term.”
If you already are a homeowner and have been contemplating making home improvements, you may benefit from lower interest rates for a home equity line of credit (HELOC).
Of course, your interest rates will be dependent upon several factors, and actual rates may vary. If you have any questions, we recommend speaking with your realtor who can point you in the right direction.
