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How does a global rate cut help mortgage rates?

Posted on October 8, 2008 by Ray Williams (NMLS #216267).

This morning in an unprecedented global rate cut, the U.S joined the European Central Bank, Canada, UK, Switzerland, and Sweeden in cutting rates. Here we cut our rates .5% (fed funds rate), and .5% for the discount rate. This has been done to give additional help to a time now being compared to that of as far back as the great deprssion (in the financial markets).

This means that if you have a home equity line of credit, you wil se your rate lower by .5%, and also credit card lending and auto lending will drop as well. I know when my girlfriend bought her car in the spring rates were as low as 5.74%, which will go down from there.

Mortgage rates historically go up when this happens, especially when it is an emergency cut. However, with a stronger dollar, and lower oil prices, this was seen as the perfect opportunity to cut these key rates.

With these key factors mortgage bonds (which tie directly to mortgage rates) should see gains (lowered mortgage rates over time), and stocks should improve as well. The stock market has already jumped like a chicken with its head cut off this morning. Starting as low as down 300 points, to up 175 points.

For now this move will help to potentially stabilize the market which includes mortgage bonds. This could help mortgage rates over time. And seeing that they are already sitting at historic lows, this is a good time to refinance if your adjustable rate is coming due soon.


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