When interest rates were cut after the Fed’s July meeting, the press was quick to point out that not every homeowner would benefit from the move. As Bankrate.com noted in its lead article How the Fed’s Interest Rate Decisions Affect Mortgage Rates, “the majority of Americans won’t be affected.”
That’s true—for the moment. But for some homeowners, by last week, the immediate effects constituted good news. The Bankrate commentators touched on some of the traditional brain-teasing economics behind the effects (“there is an inverse relationship between bond prices and yields”)—but the practical repercussions were more straightforward. Mortgage lenders reacted with rate cuts, so:
- Benefits flowed to the “winners of the rate cut”—some home loan borrowers with adjustable-rate mortgages (ARMs).
- Also benefitting were those using home equity lines of credit (HELOCs).
- Current fixed-rate mortgage holders may be able to cut their mortgage payments via refinancing.
- Possible beneficiaries will be homebuyers whose budgets could now stretch to fit pricier homes.
The reason only some ARM holders will benefit immediately is because these loans usually adjust annually—and some don’t adjust for the first two, three, five (or even seven) years.
The Bankrate piece linked to another article, from way back on June 3rd. It described how “nearly 6 million people can now cut their mortgage payments with refinancing.” That was after May’s “sharp drop in rates” (which came as a surprise) was “nearing 4%.” At that time, it was estimated that a typical refi would save U.S. mortgage holders an average of $271 per month. With last week’s typical rate in the 3’s, it’s clear that those who held off in June might well see even greater savings.
The actual benefits for homeowners are an individual calculation. As always, I’m more than happy to discuss any of your real estate plans. Call me!