The new July Federal Funds Rate cut could have an indirect impact on mortgage rates, and it might make the market for prospective home buyers more generous overall. The following is everything to know about what the Fed Rate cut by 25 basis points may impact mortgage rates overall.
About The New Fed Rate Cut
The Federal Funds Rate is the rate at which banks and other financial institutions borrow from one another. If an institution comes up short in a business day, they borrow funds to cover the difference, paying interest at the rate established by the Federal Reserve.
The Federal Reserve lowered interest rates by 25 basis points from 2.25 percent to 2.00 percent in July. The rate cut could have an impact on the U.S. Economy as a whole, including the housing industry and mortgage rates. It is helpful to know how the New Fed Rates Cut might affect your home buying decision.
How It Affects Mortgage Rates
Keep in mind that the Federal Funds Rate does not directly affect Mortgage Rates, and the intention behind it is not to influence the interest of the consumer. However, banks often change their rates based on the Federal Reserve’s decision, especially if there’s a change to the prime lending rate.
In this instance — in which the Federal Funds Rate has lowered — homebuyers and homeowners may see more generous mortgage rates, particularly with variable rate loans. Long-term fixed mortgage rates may also be affected positively for the consumer as well.
What Exactly Does This Mean?
In general, lowering the Federal Funds Rate encourages spending by the consumer, which means mortgage rates are likely to become more generous and borrower-friendly. Subsequently, it is an ideal time for prospective homeowners to search for their dream home at an affordable mortgage rate.
The Federal Funds Rate is far below the historical average – which typically sits around four percent. Therefore, the next change to the Federal Funds Rate might not be on behalf of the consumer, and it is best to take advantage of a great long-term fixed mortgage rate when one presents itself.
The Bottom Line
The Federal Funds Rate cut likely will not have a huge impact on mortgage rates, although both variable-rate loans and fixed mortgage rates alike might see a small indirect drop overall. Regardless, the best way to handle the new Fed Rate cut is to continue searching for the ideal mortgage rate on your dream home.
Of course, the Fed Rate cut could potentially make it easier to find the ideal rate, and homeowners with variable-rate loans may benefit from lower monthly prices, but the market as a whole should not be strongly impacted. Mortgage rates are overall fairly low right now, so it is certainly a buyers market, and it is often best to buy with the foresight that the future of the housing industry is always subject to change, sometimes not to the benefit of the home buyer.
EXIT Realty Bob Lamb & Associates is Murfreesboro’s most innovative real estate team.
EXIT Realty Bob Lamb & Associates
2630 Memorial Blvd, Murfreesboro, TN 37129