No Fed Cut?  Stop Twisting My ARM!

Source: Informa Research Services

 

Today, for the first time in nine months, the FOMC announced that it would not lower the Fed Funds Rate, the key interest rate set by the Federal Reserve.  So what does this mean for mortgage rates?

 

While there is no direct tie between the Fed Funds rate and mortgage rates, historically the two rates tend to correlate over time.  But as of late, this trend has not held true.  For instance, even though the Fed lowered their key interest rate 25 basis points on April 30, the national average rate on a 5/1 ARM continued to rise 51 basis points from 5.29% on May 6 to 5.80% on June 24 (Source: Informa’s Interest Rate Review®).

 

Save money by refinancing before rates climb higher

If this trend continues, how long can you afford to wait before refinancing out of your adjustable rate mortgage into a fixed rate loan?  A 50 basis point increase in your mortgage rate from 6.00% to 6.50% could increase your monthly principal and interest payment on a $200,000 mortgage from $1,199 to $1,264 a month.  Securing the lower rate in this scenario could save you $65 a month, or $780 a year.  Shop online to find the best available rates in your area.

 

Since mortgage rates seem to be rising despite Fed interest rate cuts, one smart way to keep up on how rates are changing is to check rate comparison tables regularly.  Checking national average rates can give you a quick snapshot of how rates are changing, and perhaps, some insight into where they are going.