Tuesday, December 11, 2007

Who's benefiting from the Fed rate cut?

Good news, the FED cut the rate by one-quarter point to 4.25%. Bad news, the market responded by saying “Not Enough” and dropped by almost 300 points. While investors are a little moody about wanting more, consumers will see lower rates on auto loans, and even on credit cards. And it’s a great time to have gold. But how will this affect the housing market?

One area that will benefit fairly soon, though, is the area of jumbo loans. These rates should come down, making them more affordable for still-expensive real estate markets in major cities. And, some homeowners with adjustable rate mortgages may benefit. As loans reset over the next year, they will do so to interest rates that are lower than originally expected. For some, that means that the higher mortgage payments will be manageable, possibly forestalling thousands of foreclosures.

For some, however, the Fed rate cut will be of little help. Borrowers who have subprime loans may not be able to refinance to the lower rate, due to credit risk, and others may not be able to because many subprime loans come with prepayment penalties which they would be unable to pay.

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