The Fed Cut Rates—What It Means For You
You’ve probably heard the news…“The Fed cut rates!” But what does this actually mean and how will it affect you when it comes to buying, selling or refinancing a home?
Today’s article gets into all the nitty gritty details and what you need to know about what it means for you.
What It Means When The Fed Cut Rates — Not What You Might Think!
During its September meeting, the Federal Reserve reduced the federal fund rate by 50 basis points. This was the first rate drop by The Fed since 2020, which is welcome news for consumers, homeowners and prospective home buyers, but it DOES NOT mean mortgage interest rates came down by half a point.
The “fed rate” is the rate banks use to lend each other money, not the rate they use to lend us money. It’s true that when the fed rate goes up and down, the rates offered to us consumers also goes up and down on everything from credit cards, car loans and yes, even mortgages.
But, the fed rate is NOT the same thing as the rate we pay for a mortgage. So, even though the fed cut its rate by 50 basis points, that doesn’t mean mortgages go down by the same amount right after this decision.
What It Means For Mortgage Rates
Just like the stock market, mortgage rates can go up and down every day, even if the fed rate remains the same. That’s why even though the fed hasn’t dropped their interest rate since 2020, interest rates on mortgages have been moving up and down since then.
In fact, mortgage lenders already planned on The Fed cutting their interest rate and interest rates on mortgages started dropping months ago and dropped even further the week prior to their decision.
The interest rate you pay on a mortgage depends on so many factors. Yes, what the Federal Reserve’s rate is does have an impact, but so does everything from what type of home you are buying, where it’s located, how much you putting down, your credit score, and many other factors. If you are thinking of buying a home or refinancing the one you’re in, be in touch. I compare lenders’ rates every day and can connect you with local lenders that have the lowest rates I’ve seen.
What This Means For You
The fed cutting interest rates will spur buyers and sellers who have been sitting on the sidelines the last few years into action.
• Buyers: If you’ve been thinking about buying a home, last week’s rate cut may have gotten your attention. Rates are more favorable than they were last year by more than one percentage point. That means what you want to pay per month for a home can go a lot further. It means you can look at home prices you might have been able to afford last year. Rates have been dropping for months and all indications point to this trend continuing. You might be thinking you’ll wait for rates to bottom out before you start looking for a home, but that’s not necessarily the best plan. Lower rates means more buyers will likely be out looking, which could mean more competition for the same home. This, in turn, increases prices. The sooner you start looking, the less competition you may encounter and you can always refinance when rates bottom out after finding your perfect home.
• Sellers: If you’ve been wanting to sell your home, this could be a great time to do so. I often say the fall is not as good to sell as a home as the spring market because we see less motivated buyers this time of year. I think this year will be different on the heels of the fed rate cut and a continued interest rate downward trend. Unlike most years, I am predicting we will see a strong fall selling season with motivated buyers wanting to take advantage of lower rates after sitting on the sidelines last few years. We are seeing more buyers entering the market. They are ready and hungry for a new home. Inventory continues to be low so we are seeing homes sell well for sellers. And, if you’ve been wanting to sell your home, but have been feeling “stuck” because the home you want has been unaffordable, lower rates means you can finally get unstuck by successfully selling your home and being able to afford the one you’ve been hoping for.
• Homeowners: If you’re wondering whether you should refinance, I would say hold off for now. All signs point to rates continuing to lower over the next few months. I can’t tell the future, but if I was a betting person, I’d place my bet on waiting for rates to lower even more before spending the money to refinance. Remember—even the lenders who say they there is no cost to refinance are getting paid for their time and effort by you somehow. They may roll it into a slightly higher interest rate or your loan amount, but there is always a cost to refinancing. You want to make sure what you pay to refinance is worth the investment. Whenever you decide to refinance, I’m happy to recommend a lender to you, review any proposals you might get from lenders, and even do the math so you know when you’ll break even from a refinance to make sure it’s worth the cost.
As you can see there’s a lot to learn when it comes to interest rates. So much so that I’ve written a few other articles about this topic:
The Lowdown on Loans - What Determines Your Mortgage Rate?
How to Get the Best Interest Rate for You
Should You or Shouldn’t You Avoid PMI
Buy & Renovate with One 203k Loan
ARMs Might Be a Good Loan Option for You
Why the Interest Rate You See Online is Not The One You’ll Get
How Your Credit Score Can Impact Loan Options
How Much Down Payment Do You Really Need?
How Much Mortgage Can You Really Afford Each Month?
I hope this information is helpful to you, but I also know the best way I can help is to have a conversation about your particular situation. There is no one right way to buy, sell, or refinance a home. There are tons of options and that is great, but can be overwhelming. I don’t want you to make a mistake or not know about an option that is the best option. That’s why I always encourage my friends, family, and clients to reach out to me long before you are ready to make whatever move you are thinking about making. Contact me anytime for a no obligation, no-pressure conversation. I’m looking forward to hearing from you and learning how I can help create the best scenario for YOU.
As always, I’m your go-to resource for all things real estate, even if you aren’t buying or selling anytime soon.