As expected, the Fed lowered the Federal fund rate on Tuesday. It also cut the discount rate by 50 basis points – this was not expected. This move shot a healthy dose of confidence in Wall Street causing stock prices to soar. So what does it mean to the mortgage market?
On the longer-term mortgages, the answer is likely to be “not much.†The Federal Reserve announced on Tuesday that it would cut the Federal funds rate from 5.25% to 4.75%. It also cut the discount rate, the rate that the Federal Reserve makes direct loans to banks, from 5.75% to 5.25%.
The rate cuts should translate into lower rates for short-term loans or adjustable loans such as home equity lines of credit, credit cards, business loans, and car loans. For individuals shopping for a 30-year fixed loan, the mortgage rate typically moves in-line with the interest rate on the 10-year U.S. Treasury note.