Friday, February 01, 2008

Fed Slashes Their Rate

The Fed has cut their rate twice in the last 2 weeks dropping the Prime Rate to 6%. That's very good news for long suffering Home Equity Line of Credit borrowers. They've paid as their rate went from 4% (yeah that's right) to 8.25%, now back down to 6%. Some jumbo mortgage borrowers now have a Home Equity Line of Credit at a rate lower than their 30 year fixed 1st mortgage.

The Fed Rate is not directly tied to 1st mortgage rates, as many think. The Fed Rate is the the interest rate at which banks borrow money for day to day business needs, or to shore up their overnight reserves. 1st mortgage rates are more closely tied to the 10 year Treasury bond yield. That's what consumers should be watching to find out if it's time to refinance.

The Fed Rate is directly related to the Prime Rate though, so Home Equity Line of Credit borrowers should keep track of that rate closely. There should be some payment reductions coming the next billing cycle. One suggestion as the Home Equity Line of Credit rates drop: Keep making the same payment as when the rate was much higher, that way you will pay down some of the principal. Generally, the payment due on your statement is an interest only payment. If that amount is paid the principal balance remains the same, the debt is being serviced, but not paid down. A discretionary principal payment must be made each month in order to payoff this type of mortgage loan. And the way this loan's rates fluctuate up and down, it's a good idea to pay it down as much as possible.

2 comments:

Anonymous said...

Having done some research into living conditions I have made the decision to move to the US! Apart from the medical care (which having just watched the film Sicko I am slightly concerned about) I have decided that there are more positives then negatives and am therefore very excited about the prospect of moving.
However I am concerned with purchasing a house, are mortgages over there the same as there are here? Do I need a large deposit and having spoke to a few people online I am concerned I wont be able to find a company to give me mortgage broker bonds.
and if I cant can I buy a house? Also I am familiar with the term surety bond so is a mortgage bond just a guarantee I will pay on time or is it more?

FiveMZNYC said...

I'm not sure from where you are coming, but I'm sure there are some differences in obtaining a mortgage here in the US. A mortgage is essentially using your home as collateral for a loan. I'm not sure where you are headed when you mention mortgage broker bonds or surety bonds. A mortgage is simply a loan against real property. If you will be employed and have enough liquid assets to cover the down payment, closing costs and still have some money in reserves after closing, you should be able to get financing.