Federal Interest Rate and Your Mortgage Loans

For most people they do not really know how the fed interest rate affects their mortgage loans and other financial holdings and debts. Currently the governments around the world are infusing cash into cash strap and beleaguered financial institutions. Having this in mind, the fed interest rate can affect your perception of you approach your mortgage loans. But in reality the effect in your mortgages is almost non existence. The reason for this is simply because your lenders prime rate hardly the benchmark lenders and banks use to index your mortgages.

Take the case of the recent fed interest rate cut, some lenders and banks did follow and lower their lending rates but all of them did. So if you are trying to figure out how it will affect your home loan, you might find it a little bit difficult. Figuring this out is somewhat complicated. One way it can lower your interest rate is because of the intense competition amongst the banks for depositor's money. Because of the credit crunch at the moment, banks have no other place to get money so they might lower their rates but with stricter or stringent qualifying requirements for a home loan.

When there is federal interest rate cut, prime lending rates follow suit. Most of the times these banks will follow by lowering their rates by the same amount the feds do. This could mean an instant reduction for many borrowers with credit card debts or home equity line of credit tied to a lenders prime rate. The only unfortunate thing about this some credit holders will not be able to realize any advantage or any beneficial effects because of the built in card agreements. In other words not everyone will benefit from any rate cuts by the feds.

For people who have fixed rate mortgages, they will not see any changes or any benefit to them and their mortgage loans. As the term suggest, these types of home loans are fixed to a term based generally on a track ten year treasury note which do not respond to the feds short term rates. So for homeowners who have fixed rate type home loans, they do not worry and neither benefit from any rate cuts by feds.

For the most part a rate cut would give much interest to borrowers. The prime rate is the underlying index for most home equity loans, lines of credit, credit cards, and other types of personal loans.

For adjustable rate mortgage, these are generally fluctuating based on other things or indices and not the prime rate. Most of the indices that these lenders use are the LIBOR and the eleventh district cost of funds (COFI) and other popular indices. For the most part these types of mortgage loans will have very little or no effect especially with the current financial crisis and uncharted waters where the financial industry is in right now.

Fed interest rate will have very little effect on your mortgage loans at the moment. To some it does have some effect but not across the board. With all the factors and built in agreements in every home loans and mortgages, it would be very difficult to figure out who benefits and who does not benefit from a fed rate cut.

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