Fed's Surprise Rate Cuts Might Signal Good Time to Buy Home, Refinance Mortgage

The Federal Reserve's surprise decision this morning to cut interest rates by 75 basis points may signal bleak times ahead for the U.S. economy. But that doesn't mean everybody will suffer. If you're looking to buy a home, refinance your mortgage, or consolidate debt via a home-equity loan, these next few weeks could very well help you prosper.

In a highly unusual move, Federal Reserve Chairman Ben Bernanke [pictured] on Tuesday announced plans to slash the fed funds rate to 3.5 percent, from 4.25 percent, hoping to calm the markets and to stimulate the slowing economy and avert recession. That the Fed did so a week before its scheduled meeting underscores how perilous conditions have become.

So, what's it mean to you?

First, the good news: If you need to borrow money, it might get cheaper. Rates on 30-year, fixed-rate mortgages already have fallen to about 5.4 percent from 6.3 percent six months ago. These rates take their cue from 10-year U.S. Treasury bonds, whose yields have fallen to 3.4 percent from 4 percent at the start of the year. So, maybe the 30-year mortgage will fall even further.

If you are thinking of buying a new home or refinancing a mortgage, consider waiting two or three weeks to see what mortgage rates do. There's not much risk they'll go up significantly, and there's some chance they'll drift down. Some analysts think the Fed may cut rates again at its Jan. 30 meeting.

Homeowners with adjustable-rate mortgages also may benefit from the Fed rate cut, which could lower the indexes used to rest adjustable loans. The one-year Treasury bill, for example, now yields about 3 percent -- down from 3.2 percent a month ago, and 5 percent a year ago.

In other words, if your loan resets every 12 months and used the one-year Treasury for a reset today, the interest rate could drop by two full percentage points, perhaps saving you hundreds of dollars a month.

Still, you might consider using this opportunity to refinance to a 30-year, fixed-rate loan. You could lock in that unusually good, below-6 percent rate and avoid rate hikes that you might face in the future with an adjustable loan.

The general decline in interest rates could influence rates on car loans, credit cards and home-equity loans. Unfortunately, so many factors affect those rates, it's too soon to know for sure. With interest rates in flux, keep an eye out for good deals.

Low interest rates and sinking home prices are creating opportunities for people shopping for a home or looking to refinance -- especially, if they have good credit. However, tightening lending standards are making it increasingly difficult for people to borrow if they have bad credit.

LendingTree can help you compare rates on mortgage loans, refinancing loans and home-equity loans -- with no fewer than four offers in each category. Submit your free request today!

* LendingTree Mortgage Loans: http://tinyurl.com/2v23dw

* LendingTree Refinance Loans: http://tinyurl.com/344n7a

* LendingTree Home Equity Loans: http://tinyurl.com/3bwlpn

SOURCES: Bankrate.com, MSNBC.com [file photo]
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