When the Fed acts, it affects your wallet. For that matter, if the Fed stands pat, that makes a difference to your finances, too. Here’s how the Fed’s latest announcement will affect mortgage rates.

Fixed-rate mortgages:
Mortgage rates have fallen since the Fed last met June 25 and 26. The decline in mortgage rates had nothing to do with the Fed and mostly to do with falling stock prices. In Bankrate.com’s weekly index of mortgage rates offered by large lenders, the average 30-year rate was 6.38 percent on Aug. 7. Anytime you can get a 30-year fixed rate below 6.5 percent, you’re getting a tremendous bargain, and you’ll be the envy of friends and neighbors who get mortgages a few months from now.

Long-term mortgage rates do not follow changes in the federal funds rate (the rate that the Federal Reserve Board manipulates). Instead, mortgage rates move roughly with long-term Treasury bond yields. The bond yields, in turn, respond to myriad factors. Lately, falling stock prices have been tugging hardest. Investors have responded by parking their money in safe U.S. Treasuries, driving up bond prices and depressing yields. Inflation has been almost nonexistent, and that helps keep bond yields low.

There are signs that a modest, slow economic recovery is going on. Normally, such news would boost bond yields (and mortgage rates) upward. But good economic news is a frothy Mozart symphony playing on your car stereo, and falling stock prices are the bass-heavy music thundering from the car stopped beside you. Crank up the Mozart all you want, but you won’t overwhelm the thumping rumble.

Best move now:
Go for it. This is a Golden Age of fixed mortgage rates. Avoid telling friends and family in the future that you sat on the sideline when mortgage rates were less than 6.5 percent.

Try the Bankrate.com
mortgage rate search to locate the best deal..

The 30-year fixed-rate mortgage averaged 6.38 percent on Aug. 7 in the Bankrate.com national weekly survey. The 15-year fixed-rate mortgage averaged 5.79 percent.

Adjustable-rate mortgages:
ARM rates tend to follow changes in short-term rates, such as the yields on short-term Treasury bills and notes, which track the federal funds rate closely. ARM rates likely will remain low for the rest of 2002. Eventually — maybe early next year — the Fed will raise short-term rates and ARMs will follow.

Best move now:
Someone who plans to live in a house for only a couple of years might want to consider a short-term ARM because rates are so low. One-year ARMs averaged 4.63 percent Aug. 7 in the Bankrate.com national weekly survey. Search for
the best ARM rates in your area.

Keep in mind that fixed rates are low by historical standards. Borrowers with a longer-term horizon should lock in a low rate for 15 or 30 years.