Your Guide to DeLand Real Estate and Volusia County Properties
MORTGAGE INTEREST
The Federal Reserve Lowers Interest Rates AGAIN... What Does This Mean For YOU?
In order to answer this question, it is helpful to understand the four major interest rates that are affected by the Fed:
Discount Rate (currently 2.25%) - the interest rate that banks pay when they borrow money directly from the Fed. The rate has been largely symbolic in the past because banks prefer to get short term financing by:
· Issuing "commercial paper" – these are short term IOUs of typically one to ninety days that are sold on the open market to Wall Street investors. Interest rates on these short term loans are often better than the discount rate offered by the Fed.
· Borrowing money from other financial institutions using the Fed Funds Rate as illustrated below. In most cases, this rate is also better than the discount rate offered by the Fed.
· Borrowing money using the Fed's new "Term Auction Facility" that allows Banks to bid anonymously on what interest rate they want to pay when they want to borrow money from the Fed.
Fed Funds Rate (currently 2%) - the interest rate that banks pay when they borrow money from each other here in the US. This rate is also determined by the Fed because banks in the US are part of the Federal Reserve System. You see, the Fed's main role is to maintain "monetary stability" by keeping a close eye on the flow of money throughout the economy. One way they do this is by regulating the interest rates that banks charge each other for short term funds.
LIBOR Rate (One Month LIBOR is currently 2.80%) – the London Interbank Offered Rate (LIBOR) is the interest rate that banks pay when they borrow money from other banks anywhere in the world (primarily in the international wholesale money market based in London). There are various types of LIBOR rates including the 1 week LIBOR, 1 month LIBOR, 6 month LIBOR, and 1 year LIBOR; these are the rates banks would pay if they want to borrow funds for 1 week, 1 month, 6 months, etc. Although the LIBOR rates are determined by the financial markets at any given time, they are very closely related to the Fed in that LIBOR most often changes when the market anticipates that the Fed will change their Fed Funds Rate. LIBOR is the base rate that is used on most adjustable rate mortgages (ARMs) in the US and large corporate / commercial loans. The reason LIBOR is used most often for US adjustable rate mortgages is because LIBOR is really the most accurate measure of a bank's cost of borrowing funds since most banks do business internationally these days.
Prime Rate (currently 5%) – the Fed Funds Rate + 3; this is the base rate that is used for most consumer loans such as credit cards and home equity lines of credit, as well as most small business loans. Like the LIBOR, the Prime Rate is also tied to the Fed Funds Rate.
You see, as the Fed lowers the Fed Funds Rate, the business and consumer-based interest rates of LIBOR and Prime will also go down as illustrated above. The Fed would be reluctant to continue lowering rates if they feel that businesses and consumers would start borrowing and spending so much money that inflation will go up significantly.
Remember, the Fed's main goal is to "maintain monetary stability" by keeping a close eye on the flow of funds in the US economy. It would be reckless of them to artificially encourage too much borrowing and spending as this would only artificially drive up asset prices and cause money to lose its purchasing power. This phenomenon is known as "inflation."
How does the Fed affect mortgage rates?
Well, if you have a home equity line of credit based on Prime or short term ARMs based on LIBOR, you should see an immediate reduction in your interest rate in the coming weeks. However, if you are considering a fixed rate loan or longer term ARM with a fixed period of 3, 5, 7 or 10 years, rates on those types of loans are not directly related to the Fed. Instead, these rates are closely tied to the Mortgage Backed Securities that trade on the bond market. For more on how this process works, please reference the article entitled, Saga of the US Mortgage Industry.
With all this in mind, it is more important than ever to work with a Certified Mortgage Planning Specialist™ who can decipher market conditions and help you make informed decisions in today's volatile market. A CMPS® professional can look at Fed decisions and economic reports that are coming out and help you make the right mortgage choices. Whether you have or are considering an ARM or a fixed rate loan; whether you are buying, selling or refinancing a home; whether you are dealing with a primary, vacation or investment property; now is the time to be dealing with an expert.
CMPS® professionals are committed, qualified and equipped to help you navigate today's turbulent mortgage marketplace. Don't delay in implementing the mortgage and real estate equity planning strategies that will make a positive impact in your life and the lives of your loved ones!
Maureen Harland, CMPS®
My Mortgage Company 600 W New York Ave Deland, FL 32720
CONTACT MAUREEN HARLAND FOR FIRST-CLASS ASSISTANCE IN FINANCING YOUR NEXT HOME!
I will never share your personal information with any outside sources!
Your Guide to DeLand Real Estate and Volusia County Properties around Central Florida including these areas: DeLand, Orange City, Glenwood in DeLand, Victoria Park in DeLand, Victoria Commons in DeLand, Victoria Hills in DeLand, Brandywine in DeLand, Bent Oaks in DeLand, The Reserve at Bent Oaks in DeLand, Tomoka Woods in DeLeon Springs , Barberville, Beresford Lakes Terrace in DeLand, Hontoon Peninsula in DeLand, St. Johns River along Volusia County, Lake Beresford in DeLand, River Ridge in DeLand, Hontoon Marina in DeLand, Quail Hollow in DeLand, Blue Springs in Orange City, Daytona Park Estates in DeLand, Enterprise, Enterprise in Orange City, Saxon Woods in Orange City, Longleaf Plantation in DeLand, DeBary, DeBary Golf & Country Club, DeBary Plantation, Deltona, Lake Helen, Cassadaga, Osteen, DeLeon Springs, Astor, Pierson, Seville, Lake Lindley, Lake Winnemissette, Samsula, Sanford, Lake Mack, Lake County, Whisperwood Mobile Homes, Meadowlea Estates Manufactured Homes, The Oaks, North Ridge in DeLand, Stetson University, Port Orange, Ormond Beach, Countryside, Holly Hill, Samsula, Forest Trace in DeLand, Mallory Square in DeLand, Port Orange Landings, Daytona Beach, Daytona Beach Shores, Seminole County real estate, Sanford, Orlando, Orange County real estate, DeLand Mobile Homes, A Better Place, Shops of DeLand, The Trails, Trails West in DeLand, Glenwood Springs in DeLand, Berry's Ridge in DeLand, Northridge in DeLand, Riviera Bella in DeBary, Blue Lake in DeLand, Glenwood Reserve in DeLand, Stone Island in Deltona, Glenn Abby in DeBary, and more!
Put the Power of Total Realty, The Jennifer Clark Team and Technology to work for you!
Michael Halpin, Realtor®, e-PRO and Volusia Property Showcase.com
Total Realty 2683 S. Woodland Blvd. DeLand, FL 32720
LIBOR Rate (One Month LIBOR is currently 2.80%) – the London Interbank Offered Rate (LIBOR) is the interest rate that banks pay when they borrow money from other banks anywhere in the world (primarily in the international wholesale money market based in London). There are various types of LIBOR rates including the 1 week LIBOR, 1 month LIBOR, 6 month LIBOR, and 1 year LIBOR; these are the rates banks would pay if they want to borrow funds for 1 week, 1 month, 6 months, etc. Although the LIBOR rates are determined by the financial markets at any given time, they are very closely related to the Fed in that LIBOR most often changes when the market anticipates that the Fed will change their Fed Funds Rate. LIBOR is the base rate that is used on most adjustable rate mortgages (ARMs) in the US and large corporate / commercial loans. The reason LIBOR is used most often for US adjustable rate mortgages is because LIBOR is really the most accurate measure of a bank's cost of borrowing funds since most banks do business internationally these days.
