The Federal Reserve cut interest rates at the end of July for the first time since 2008. The possible reasons for the .25% decrease have been a topic of conversation and media discussion for weeks. Whatever the reason, local lenders say it is positive for Mount Pleasant.
“It’s all good news in the mortgage world, but it’s important to note that the Fed cut the federal funds rate, not mortgage rates directly,” said Ethan Lane, branch manager at Mortgage Network in Mount Pleasant. “The federal funds rate is the target rate for banks lending funds to other banks. Homeowners with adjustable rate mortgages and home equity lines of credit will see the largest immediate benefit, as their rates are determined by indicators directly tied to the federal funds rate.”
Wes Sellew, mortgage production manager at Renasant Mortgage Lending in Mount Pleasant, said this is a good time for homeowners and those thinking about buying a home. “Lower rates are great for anyone buying a home because payments will be lower, or they can afford a larger mortgage. If you already own a home, you should consider doing a mortgage checkup to see if a refinance will benefit you in any way.”
Sellew pointed out that mortgage rates had already come down over 1% since November 2018. “What these lower rates mean is that someone who could afford a mortgage of $328,000 before can now afford a mortgage for $375,000, which is a 12% increase.”
Looking at the rate cut and its effect on long-term mortgages, Lane explained, “Long-term, fixed-interest mortgage rates are actually driven by investor demand in the market for mortgage bonds and mortgage-backed securities. The indirect benefit of rate cuts like we just saw is that the demand for those bonds and mortgage-backed securities increases due to the Fed’s language and reasoning behind the cuts themselves. This rate cut had been expected and cautiously priced into the market, so, while the news was a positive confirmation, it wasn’t a shock that would radically impact mortgage rates all at once. When the Fed does something unexpected, that’s when you’ll see the most dramatic movement.”
Will there be more rate cuts? “Wall Street and others seem to think the Fed will make more cuts by the end of the year,” Sellew said. “I think there is a big positive from the Fed’s move. In the past, the Fed has been slow to make adjustments to monetary policy and changes were too little or too late. With the quick adaption to all of the global data, the Fed is trying to position the U.S. from avoiding a recession and keep us headed for a longer run of growth and expansion.”
Lane concluded, “Overall, this is great news for the housing market in Mount Pleasant. It’s a sign that low mortgage rates shouldn’t be going anywhere in the near future and could continue to see some small improvement. It’s a perfect time to buy, build or refinance, and our local economy is definitely feeling the positive effects.”
By Tonya McGue