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When the Federal Reserve meets and changes rates we all have questions: What does it mean to me? Will my mortgage rate go up or down? Is this a good time to refinance? Bankrate is here to help. We’ve looked at five categories — mortgages, home equity loans, auto loans, credit cards and certificates of deposit — to determine if the Fed’s moves made you a winner or a loser. Here’s a look at mortgages:
Winner: Borrowers with good credit
The surprise decision by the Federal Open Market Committee to cut the federal funds target by 75 basis points likely reflects growing fears that the U.S. economy is weakening. Ironically, such worries may be good for people hoping to see lower mortgage rates.
Mortgage rates often dip when investors fearing an economic slowdown grow more conservative and buy up Treasuries and bonds. This causes long-term rates — and by extension, mortgage rates — to fall, creating an opportunity to get better terms on a loan.
However, the nation’s recent credit woes mean you probably need a sound credit history to take advantage of these better terms.
“If you are a high-quality credit household and you’re looking to buy a house, prices have fallen in many markets,” says Doug Duncan, chief economist for the Mortgage Bankers Association. “In addition to that, interest rates have come down.
“Those two things indicate that you’re likely to get a more affordable mortgage and homes will be more affordable.”
People with adjustable-rate mortgages can also refinance to a fixed-rate mortgage. This will lock in their payment for years to come, regardless of the future direction of mortgage rates.
Loser: Borrowers with bad credit
Falling mortgage rates are great for homebuyers and homeowners looking to refinance. But if you’ve had credit problems in the past, tightening lending standards means you’re less likely to be approved for a loan, Duncan says.
Now is a good time to start shopping for a home. It’s also a good time to refinance from an adjustable-rate mortgage to a fixed-rate.
“The takeaway for the average Joe is that it’s one heck of a time to refinance,” says Bob Walters, chief economist for Quicken Loans.
Meanwhile, if your credit is bad or your home is losing value, you likely will have more difficulty getting a loan. Still, it’s worth calling around to find a lender who may be willing to work with you, Walters says.
“I’m not saying that everyone’s going to get approved,” he says. “I’m saying that everybody should try.”