Federal Interest Rate; It’s affect on your home loan

Earlier this year, included in the barrage of breaking news, we heard about the Fed slashing interest rates to a rate of near-zero. It sounds great – but many wondered, “what does it mean for me and my home loan?”

Does it mean you can refinance your current home loan or get a new one with an interest rate of zero? No, it doesn’t. But it’s still good news for you, the consumer.

Before we go further,  “the Fed” is in reference to the Federal Reserve. The role of the Federal Reserve, among other things, is to oversee the nation’s monetary policy by managing short-term interest rates for lending money to financial institutions and banks.

So when the Fed dropped rates to “near zero”, those rates are solely for banks and financial institutions who are borrowing the money from the Federal Reserve. But these banks and financial institutions are then lending out money to you – the consumer. Banks use these lower rate funds for loans like Home Equity Lines of Credit or credit cards – credit that’s meant to be paid off quickly. Before lending it out, the banks and financial institutions have the option to add additional interest – and they likely will. Where’s the good news?

Whether you’re applying for a home loan or you’re looking to refinance your existing home loan, now is the time to act because while rates aren’t zero percent, they are at all-time low – and it won’t last forever. Don’t wait to talk to one of our mortgage bankers to find out if a refinance or pursuit of a home loan would be to your advantage.