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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: ARM holder or shopper
The decision by the Federal Open Market Committee (FOMC)Federal Open Market Committee
The FOMC consists of 12 members: the seven members of the Board of Governors of the Federal Reserve System, the president of the Federal Reserve Bank of New York; and four of the remaining 11 Reserve Bank presidents, who serve one-year terms on a rotating basis. The FOMC holds eight regularly scheduled meetings per year. At these meetings, the Committee reviews economic and financial conditions, determines the appropriate stance of monetary policy, and assesses the risks to its long-run goals of price stability and sustainable economic growth. to cut rates by 25 basis points could be a boon for homeowners with adjustable-rate mortgages. It could mean your rate will go down, or at least not rise as much as it would have, the next time your mortgage resets.
Federal funds target rate
The federal funds target rate is the short-term interest rate that banks charge other banks to borrow money overnight at the Federal Reserve. The actual rate, or effective rate, changes daily and may be above or below the targeted rate. The FOMC sets the rate at its regularly scheduled meetings but may opt to change it between meetings should economic conditions warrant a change. by 50 basis points in September. The Fed’s latest decision could cause your payment to take a dip if your mortgage resets within the next few weeks or months. Prospective homeowners shopping for an ARM also should find more attractive rates.
Winner: Fixed-rate shopper
It remains to be seen whether the decision by the Fed will help people shopping for new fixed-rate mortgages. Sometimes, fixed-rate mortgages move in tandem with short-term interest rates, but other times they do not.
The Fed’s rate cut will have no impact on people with existing fixed-rate mortgages unless they are considering refinancing into a new mortgage, in which case it might help.
Now is a great time to take out a mortgage. Fixed-rate mortgages remain low by historic standards, and adjustable-rate mortgages are less likely to rise significantly now that the Fed is in a rate-cutting mode.