Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
If fed cuts today, what will that do to mortgage rates?
Old 01-30-2008, 10:01 AM   #1
Recycles dryer sheets
 
Join Date: Dec 2006
Posts: 424
If fed cuts today, what will that do to mortgage rates?

Any predictions?
__________________

__________________
JohnDoe is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 01-30-2008, 10:04 AM   #2
Full time employment: Posting here.
Retire Soon's Avatar
 
Join Date: Nov 2005
Posts: 655
Probably not much immediate effect. Mortages are closely tied to 10 year treasuries, and the Fed Funds rate cut will only have an effect on short term rates.
__________________

__________________
Retire Soon is offline   Reply With Quote
Old 01-30-2008, 10:08 AM   #3
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
brewer12345's Avatar
 
Join Date: Mar 2003
Posts: 16,391
Which flavor of mortgage did you have in mind? May not mean much to fixed mortgages, but 6 month, 1 year, etc. ARMs will see a big benefit.
__________________
"There are three kinds of men. The one that learns by reading. The few who learn by observation. The rest have to pee on the electric fence for themselves."



- Will Rogers
brewer12345 is offline   Reply With Quote
Old 01-30-2008, 10:31 AM   #4
Full time employment: Posting here.
ProspectiveBum's Avatar
 
Join Date: Sep 2006
Location: SoCal
Posts: 667
Quote:
Originally Posted by brewer12345 View Post
Which flavor of mortgage did you have in mind? May not mean much to fixed mortgages, but 6 month, 1 year, etc. ARMs will see a big benefit.

That'll kick-start the housing market! Bye-bye recession depression!
__________________
ProspectiveBum is offline   Reply With Quote
Old 01-30-2008, 10:32 AM   #5
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
brewer12345's Avatar
 
Join Date: Mar 2003
Posts: 16,391
Quote:
Originally Posted by ProspectiveBum View Post
That'll kick-start the housing market! Bye-bye recession depression!
There is a bloomberg article floating around mentioning the fact that all these rate cuts mean that there may not be an upward reset of ARM rates when the teaser period ends. Bernanke 1 Paulson 0.
__________________
"There are three kinds of men. The one that learns by reading. The few who learn by observation. The rest have to pee on the electric fence for themselves."



- Will Rogers
brewer12345 is offline   Reply With Quote
Old 01-30-2008, 05:47 PM   #6
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Jul 2005
Posts: 5,408
bonds took a big hit after the rate announcement and spiked up before recoving and dropping about 1/2 way down.

these rate cuts may actually cause fixed rate mortgages to rise as the fear of inflation keeps them up
__________________
mathjak107 is offline   Reply With Quote
Old 01-30-2008, 09:07 PM   #7
Thinks s/he gets paid by the post
growing_older's Avatar
 
Join Date: Jun 2007
Posts: 2,608
ARMs tied to Prime got a .75 reduction last week and another .5 reduction today. Sweet. If you're tied to something else the effect will be muted.
__________________
growing_older is offline   Reply With Quote
Old 01-30-2008, 09:10 PM   #8
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
audreyh1's Avatar
 
Join Date: Jan 2006
Location: Rio Grande Valley
Posts: 16,456
Are any ARMs tied to Prime?

Audrey
__________________
audreyh1 is offline   Reply With Quote
Old 01-30-2008, 09:54 PM   #9
Thinks s/he gets paid by the post
 
Join Date: Aug 2004
Location: Laurel, MD
Posts: 2,947
Quote:
Originally Posted by audreyh1 View Post
Are any ARMs tied to Prime?

Audrey
I had a Wachovia HELOC that was pegged to prime-1/2 which I traded for a fixed loan last summer. I've seen others that were prime-3/4
__________________
jazz4cash is offline   Reply With Quote
Old 01-31-2008, 12:22 AM   #10
Thinks s/he gets paid by the post
growing_older's Avatar
 
Join Date: Jun 2007
Posts: 2,608
Well, mine is. I guess I assumed since I had one they were somewhat common. Maybe not? I never did a poll.
__________________
growing_older is offline   Reply With Quote
Old 01-31-2008, 03:12 AM   #11
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Jul 2005
Posts: 5,408
arms are pegged to short term rates. conventional mortgages are not. they are tied to other indexes that use longer term bonds or costs. rightnow short term rates have been cut drastically, longer rates are actually up a hair
__________________
mathjak107 is offline   Reply With Quote
Old 01-31-2008, 06:43 AM   #12
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
brewer12345's Avatar
 
Join Date: Mar 2003
Posts: 16,391
Quote:
Originally Posted by audreyh1 View Post
Are any ARMs tied to Prime?

Audrey
Not that I am aware. Usually just HELOCs are tied to rime. But ARMs are usually tied t o stuff that stays pretty tight with the fed funds/prime rates: MTA, COFI, CODI, CMT, LIBOR, etc. If you are actually interested in the details, there is more than you ever wanted to know about these rate indexes here: Mortgage-X ~ Everything There Is To Know About Mortgage Loans
__________________
"There are three kinds of men. The one that learns by reading. The few who learn by observation. The rest have to pee on the electric fence for themselves."



- Will Rogers
brewer12345 is offline   Reply With Quote
Old 01-31-2008, 11:13 AM   #13
Recycles dryer sheets
 
Join Date: Jan 2007
Posts: 105
Following the additional rate cut, 15yr fixed down 1/4 to 5.0% today at PenFed

But as previously pointed out elsewhere, probably more tied to the 10yr treasury that is also down a bit
__________________
jblack is offline   Reply With Quote
Old 01-31-2008, 12:35 PM   #14
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
audreyh1's Avatar
 
Join Date: Jan 2006
Location: Rio Grande Valley
Posts: 16,456
Quote:
Originally Posted by brewer12345 View Post
Not that I am aware. Usually just HELOCs are tied to rime. But ARMs are usually tied t o stuff that stays pretty tight with the fed funds/prime rates: MTA, COFI, CODI, CMT, LIBOR, etc.
I didn't think any ARMs were tied to Prime. Just wanted to be sure.

I usually hear LIBOR, and that is partly dependent on European rates from what I understand.

Audrey
__________________
audreyh1 is offline   Reply With Quote
Old 01-31-2008, 12:45 PM   #15
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
brewer12345's Avatar
 
Join Date: Mar 2003
Posts: 16,391
Quote:
Originally Posted by audreyh1 View Post
I usually here LIBOR, and that is partly dependent on European rates from what I understand.

Audrey
Nope, not tied to European rates. LIBOR is the rate at which the big money center banks agree to lend to each other for a given term (one day, one month, three months, one year, etc.) in a particular currency (dollar, pound, Euro, etc.). Its set by auction, once a day. Usually, LIBOR rates track fed funds and/or the shhort term T bill pretty closely. Things got really wacky in the second half of last year, but usually you can figure dollar LIBOR being within 1/4 or 1/2% within fed funds.
__________________
"There are three kinds of men. The one that learns by reading. The few who learn by observation. The rest have to pee on the electric fence for themselves."



- Will Rogers
brewer12345 is offline   Reply With Quote
Old 01-31-2008, 12:50 PM   #16
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
audreyh1's Avatar
 
Join Date: Jan 2006
Location: Rio Grande Valley
Posts: 16,456
Oh, OK. I guess I had read something to the effect that adjustable rate mortgages hadn't come down much (late last year) because the Europeans (or was it the British) hadn't lowered their interest rate, and that this somehow affected LIBOR.

Audrey
__________________
audreyh1 is offline   Reply With Quote
Old 01-31-2008, 12:55 PM   #17
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
brewer12345's Avatar
 
Join Date: Mar 2003
Posts: 16,391
Quote:
Originally Posted by audreyh1 View Post
Oh, OK. I guess I had read something to the effect that adjustable rate mortgages hadn't come down much (late last year) because the Europeans (or was it the British) hadn't lowered their interest rate, and that this somehow affected LIBOR.

Audrey
Uh, maybe true for mortgage rates in Europe.
__________________
"There are three kinds of men. The one that learns by reading. The few who learn by observation. The rest have to pee on the electric fence for themselves."



- Will Rogers
brewer12345 is offline   Reply With Quote
Old 01-31-2008, 12:56 PM   #18
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
audreyh1's Avatar
 
Join Date: Jan 2006
Location: Rio Grande Valley
Posts: 16,456
Thanks for setting me straight.

Audrey
__________________
audreyh1 is offline   Reply With Quote
Old 01-31-2008, 02:29 PM   #19
Recycles dryer sheets
 
Join Date: Dec 2006
Posts: 424
Would it better to refi in my name only or do it jointly with my wife's name on the mortgage too?
__________________
JohnDoe is offline   Reply With Quote
Old 02-02-2008, 10:10 AM   #20
Thinks s/he gets paid by the post
 
Join Date: Oct 2006
Posts: 3,812
Quote:
Originally Posted by brewer12345 View Post
There is a bloomberg article floating around mentioning the fact that all these rate cuts mean that there may not be an upward reset of ARM rates when the teaser period ends. Bernanke 1 Paulson 0.
I don't have an ARM, so I haven't been paying attention. I also figured that the Fed controls very short term rates, it only "influences" longer rates. But, after the last rate cut I had to look this up.

What I've been hearing on the news made me think something like this: "People got ARMs in 2005 at low rates. Lots of them were 3-year resets. Since then, the index rates have gone up. But since the ARMs don't reset until 2008, borrower's payments have been fixed. When the ARM resets, payments will shoot up, and borrowers will be in trouble."

Some of these loans use the 3 year treasury as the index, so here are some 3 year constant maturity rates per FRED,
Feb 4, 2005: 3.46%
Jul 6, 2007: 4.95%

That's a ratio of 1.43. On a "non-teaser" amortizing mortgage the payments will go up less than 43%, but if the initial rate had a teaser margin, you could see a payment jump in this neighborhood. So last July it looked like these 2005 borrowers were in trouble.

But these mortgages didn't reset last July. Since then the Fed has been driving fed funds rates down, and 3 year treasuries have followed. So here is the latest rate:

Jan 25, 2008: 2.21%

Unless I'm missing something, a "plain vanilla" 3 year ARM originated in Feb 2005 is likely to reset for a lower payment in Feb 2008. If the teaser amounted to "understating" the initial rate by 1%, it's still going to reset lower.

The Fed isn't exactly sending borrowers checks, but seems to be doing something that's almost as good.


http://research.stlouisfed.org/fred2/data/WGS3YR.txt
__________________

__________________
Independent is offline   Reply With Quote
Reply

Tags
mortgage


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Fed funds rate vs Mortgage rates jIMOh FIRE and Money 1 01-18-2008 01:54 PM
Mortgage Rates & the Fed scooter260 Other topics 6 12-08-2007 08:09 AM
fed halts rates? NOT! mathjak107 FIRE and Money 20 05-14-2006 03:33 PM
Fed raises rates again. laurence FIRE and Money 20 09-21-2005 11:33 AM
SBC Cuts DSL rates to just $15/month!!! MooreBonds FIRE and Money 19 06-04-2005 11:13 AM

 

 
All times are GMT -6. The time now is 02:53 AM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.