Davidson Realty, Inc.

How Federal Reserve Rate Decisions Impact Mortgages

September 23, 2019

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Posted by in News, Northeast Florida Market Trends

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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