March 10, 2020

Federal Reserve Drops Interest Rates Again



If you recall back in August we discussed the Federal Reserve’s cut of interest rates for the first time since 2008. Well, this past week it happened again. Read on as we discuss what this means, why it happened and how it can help you get into your new home and save money!

The What

If you recall the previous interest rate cut in 2008, you know it was a last-minute attempt to keep our economy strong in the face of a recession. During that time, it was too late. With that in mind, they decided proactively to drop the rates in 2008. While there was no huge looming threat of recession at that time, it was a proactive decision to keep our economy flowing smoothly. This week the rates were cut again and this time it also outside of a regularly scheduled policy meeting.

The Why

“When the Fed makes an emergency rate cut, there’s always concern that the Fed knows something the market doesn’t,” said Charles Tan, Co-CIO of Global Fixed Income. “In this situation, I don’t think the Fed knows more than the general public, and I think the cuts are an insurance policy and preventive in nature.” With the current COVID-19 coronavirus outbreak, the Federal Reserve wants to continue to see our economy steady and strong. Interest rate cuts are a way to do that. It keeps people spending and confident in our economy.

What It Means For You

Lowered interest rates provide an opportunity for lower rate borrowing. Although Federal funds and interest rates are not directly connected, this new lower rate could give you a decrease in mortgage interest rates if you are looking to purchase now or in the next few months. This does not mean a change in your current fixed-rate mortgage, but if you have an adjustable-rate mortgage may see a reduction in payments. To put it in perspective: the average rate on a 30-year fixed mortgage was 3.45% during the week through Feb. 27, down from 4.35% a year earlier and the average rate on a 15-year mortgage fell to 2.95% from 3.77% a year earlier.

If you have thought about refinancing your home, this would be a great time to do that! With the rate cuts, you could possibly save $150 off your current mortgage. $150 may not sound like much in the long run but can definitely help with the month to month budgeting. Check out our refinance calculator here.

What is Next?

If you have been thinking of purchasing a new home now is a great time to begin the process. Houses are selling quickly and with the lower interest rate, you can get a great deal on a new place. If all of this finance talk is difficult for you to keep up with, reach out to our team at Method Mortgage. After all, we are The Smartest Way Home. We’ll do our best to educate you and provide a quick, efficient pre-approval process, then secure the mortgage that best fits your situation.

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