Monday, February 4, 2008

The Federal Reserve and Mortgage Rates

By: Shawn Tihen
Senior Mortgage Banker

In case you haven’t heard, it’s an election year and one of the biggest topics between the candidates is how to stimulate the economy and to reverse the troubled housing market, which has us headed towards a possible recession.

The fear of recession and other factors has caused the Federal Reserve to cut the Federal Funds Rate twice in the last few weeks; once by ¾ of a point and then followed up by a ½ point.

These rate cuts have lead to the following question, “I hear interest rates have dropped, should I refinance my home loan?”

First, the Federal Funds Rate does not have a direct correlation to mortgage rates. Therefore, even though the Federal Reserve cut rates by a total of 1.25%, mortgage rates did not go down by that percentage.

However, because of the economy, mortgage rates have dropped recently to levels not seen in almost four years. So again the question; does it make sense to refinance?

The decision to refinance is unique to every client’s situation and many factors have to be considered including: how long you are planning on staying in the home, the new interest rate and the closing costs to obtain the loan. Each person must determine if a refinance will help their financial situation while meeting their short and long term financial goals.

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