How Does the Fed Rate Cut Affect Your Home Financing?

Estimated reading time: 3 minutes

The Federal Reserve’s latest decision to cut their benchmark rate has sparked conversations across the financial world—especially for those in the housing market. Whether you’re a first-time homebuyer or a seasoned homeowner, this rate drop presents new opportunities for better financing. Let’s explore how you can make the most of these shifting market conditions.

What Happened During the September Fed Meeting?

During the year, the Federal Open Market Committee (also known as the Fed or the Federal Reserve) meets eight times a year to review economic and financial conditions, determine appropriate monetary policy, and assess the risks to its goals of price stability and sustainable economic growth.

At the latest Fed meeting on September 18, the Fed voted to lower its benchmark interest rate by 0.50%. This is the first reduction they’ve implemented since 2020 and affects short-term borrowing costs for banks as well as consumer products, such as mortgages, auto loans, and credit cards.

What Does the Fed’s Decision Mean for Homebuyers and Homeowners?

The Fed’s decision doesn’t directly affect interest rates for loans and mortgages. However, LendingTree economists note that mortgage interest rates and the Fed’s benchmark rate sometimes move in the same direction because they consider the same factors, such as the labor market and inflation. With a drop in rates, experts are expecting to see more would-be buyers enter the market from the waiting sidelines.

More Purchasing Power for First-Time Homebuyers

As an interest rate is the price you pay to borrow money, a lower rate will increase a borrower’s purchasing power and keep more money in their pocket. The chief economist of the National Association of Realtors put it another way: a person with a $2,000 monthly mortgage budget can now afford a home that costs about $50,000 more.

Refinancing or Move-Up Opportunities for Existing Homeowners

A drop in rates could be the push existing homeowners need to refinance their existing mortgage into a lower rate. A refinance can reduce your monthly payments, shorten your loan term, or free up cash from your equity.

Additionally, the homeowners that were holding onto their lower rates may take this opportunity to sell and use their equity to purchase a new home. This would upgrade their living situation while still keeping payments manageable.

How to Prepare for the Interest Rate Drop

A credit analyst of LendingTree suggests the best thing people can do in response to this news is to contact your home financing team, such as your Loan Originator and Real Estate Agent. By preparing now for when future rate drops happen, you can be prepared for whatever comes in the future.

Consolidate Debt

Debt consolidation rolls multiple debt sources, like credit card bills, into a single payment. Not only is a single monthly payment a more efficient way to tackle debt, but you may also save money by lowering your overall costs.

Keep Your Credit in Good Standing

Your credit score has a direct impact on your interest rate. The higher your score, the more trusting a lender will be that your finances can handle repaying your mortgage and will provide you with an interest rate that reflects that trust.

Work Directly with a Licensed Loan Originator

While reading articles and watching videos can give you general knowledge, personalized advice from a licensed Loan Originator is essential for making the best decisions for your long-term home financing goals.

Ready to find out more about how the market conditions can impact you? Contact us today!