How Federal Reserve Rate Decisions Impact Mortgages

September 23, 2019

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As mortgage loan originators, we are often the first phone call when customers hear the Fed (Federal Reserve) has “cut rates” during one of its Open Market Committee meetings.

 

Typically, if the Federal Reserve makes a cut, usually .25% at a time, it is designed to stimulate short term interest rates, encourage investment by businesses and encourage consumers to make durable goods purchases like automobiles, appliances or recreational vehicles. It is also meant to encourage homeowners to dip into home equity for home improvements, debt reduction or possibly college expenses for a child.

 

Short-term financing rates move in the same direction as the Federal Funds rate. So if you are considering a 3-5 Year adjustable rate mortgage (ARM), you may see a dip in those rates. I like to refer to these downward cuts as a “loosening” of credit.

 

As for fixed rate loans at 15-30 Year terms, the Federal Funds rate does not always have an impact. They are not directly linked to each other.

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What’s the best time to refinance? Use this simple rule of thumb

June 24, 2019

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As mortgage professionals, we are often asked about refinancing, especially at times like these when interest rates are historically low.

 

In addition, every time you turn on your television or go online, you are bombarded with advertising encouraging you to refinance now! But when should you consider refinancing?

 

In a normal interest rate environment and in Florida, the “rule of thumb” is that if you can reduce your rate by 2%, and plan to stay in your home for more than 2 years, you will begin to realize some actual savings. The math is simple:

 

On a 30-year fixed rate loan of $200,000 at a 6% interest rate,your payment (principal + interest) would be $1,199.10.


If you secure a new rate of 4% on the loan, your payment would go down to $954.83. That is a payment reduction of $244.27 a month.


Over 24 months, that’s a net savings of $5,862.48!

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Davidson Realty