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For the second time in three months, the Federal Reserve lowered its federal funds rate on Thursday. Now between 4.50% and 4.75%, the rate is down 75 basis points compared to its September 1 level. And, if inflation continues to fall, it could fall further when the Fed reconvenes in December for its final meeting. of 2024. Although this is not good news for savers accustomed to high rates on certain savings accountsThis is generally good news for borrowers who have had to pay more for their mortgages, credit cards and more.
Mortgage Ratesin particular, jumped last year to their the highest level since 2000 but have since declined in line with inflation. But the return to the bottom has been fraught with pitfalls in recent weeks. So what does this latest Fed rate cut mean for mortgage interest rates? This is what we will detail below.
Find out the mortgage interest rate you are currently entitled to here.
What the Fed Rate Cut Means for Mortgage Interest Rates
In short, Thursday’s interest rate cut, as welcome as it is, is unlikely to do much for mortgage interest rates. Here’s why:
It was only a 25 basis point reduction
Ahead of The drop of 50 basis points larger than expected in September, mortgage rates have fallen at its lowest level in two years. This has given homebuyers ready to act and some homeowners looking to refinance a window of opportunity to realize savings opportunities. But this week’s decline was only 25 basis points. This is certainly a step in the right direction, but not significant enough to result in a significant reduction in mortgage rates. And because lenders consider multiple factors in their mortgage rate offers — not just the federal funds rate — it’s unlikely that mortgage rates will drop by the same percentage that the federal funds rate just fell.
Find out what mortgage rates are available now that the Fed has cut rates again.
The price was set by the lenders
Homebuyers who checked mortgage interest rates on Monday of this week, then checked them again after the Fed meeting, may have been surprised to see an identical or slightly changed rate offer. This is likely because today’s reduction has already been preemptively priced in by lenders. This frequently happens when lenders monitor the market and make appropriate adjustments to their rates. This is why you should check mortgage interest rates daily for the opportunity to benefit from a lower than average rate.
Other factors offset these reductions
There was no Federal Reserve meeting in October. However, mortgage interest rates increased by more than a point over the month. Why then? It’s because other factors affect mortgage interest rates not to mention what the Fed does (or does not do). And some of these other factors, like unemployment And inflation interest rate, can and often will offset formal rate cuts issued by the Fed. THE 10-year Treasury yield also plays a vital role in the direction mortgage interest rates follow. So while a Fed rate cut would theoretically help lower mortgage interest rates, it’s often a much more complex set of factors that push rates up.
The essentials
A Fed rate cut is only part of the calculus for borrowers seeking a low mortgage interest rate. That said, waiting for the perfect time to buy comes with its own set of complications. In today’s market, it may be worth buying now, especially if you find your dream houseAnd refinancing at a time when rates have finally fallen to a level that suits you.
Learn more about your current home buying options online.
