Does the Federal Funds Rate Affect My Mortgage?

On Tuesday, January 22nd, the Federal Reserve slashed the federal funds rate by three-quarters of a point to 3.5% - the largest one time cut in nearly 2 years. This should immediately benefit consumers with home equity lines of credit, credit cards, and some auto loans.

However, it is important to note that because the federal funds rate is a considered a short term rate, the rate cut does not immediately affect most mortgages. Mortgages are typically influenced by longer-term yields, such as the 10-year Treasury (ticker: tnx).

While short term rates and long term rates often move together, today's Fed announcement has not had a dramatic impact on the 10-year. This is because while today's Fed move was a surprise, investors expected the Fed to cut rates at next week's meeting and the 10-year was already priced accordingly. In fact today's modest gains are more likely due to the stock market's big losses, as investors selling stocks move their money into Treasurys.

Whether you are an existing home owner or a prospective buyer today's rate cut will have little impact on your mortgage rate. However, you could still benefit from a lower rate on your home equity lines of credit.

You can also take comfort in the fact that mortgage rates remain near historical lows, regardless of today's news.

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