The Mortgage Note

 Tuesday, March 18, 2008 2:55:28 PM

What's the good news?  The Federal Open Markets Committee (FOMC, the Federal Reserve, affectionately "the Fed") has just cut the rate by 75bps!

What does that mean in English?  The Fed has just reduced by 3/4 percentage point the rate they charge banks on overnight loans, down to 2.25%.  This is a cut of 3% since September of last year, spurred by the lagging economy and the current credit crisis.

How does this affect you?  Prime, or prime rate, is directly tied to the rate at which banks borrow money; the less they have to pay for it, the less you as a consumer are charged to use it.  This cut will lower prime to 5.25%; the cut will affect the rate of interest you pay on any credit card tied to prime (i.e., if your bankcard is at "Prime + 1", your next full billing cycle should reflect a significantly lower payment since prime is now lower!)  The payment on your home equity line of credit (HELOC) should also change on its next full billing cycle if it's tied to prime.

What about my first mortgage?  Unfortunately, the two are different animals!  I will explain what affects first mortgage rates in the next post.  STAY TUNED....