SHEEPSHEAD BAY BROOKLYN, NY — Feb. 22, 2010 (FreeRateUpdate.com) – Last Thursday, in a surprise move, the Fed raised the discount point 0.25. Of course, markets overreacted. Anything involving an interest rate hike causes a bit of a scare. Reality is, the discount rate, which applies to emergency overnight lending to banks, has no effect on borrowing rates for consumers. The hike in the discount rate, does re-affirm what we already know. That the Fed is likely to begin raising the Fed Funds rate, which directly effects credit lines, adjustable rate mortgages, credit cards, installment loans, and more, by the end of the year. Contrary to popular belief, the Fed Funds rate does not directly effect 30 year fixed Fannie Mae and Freddie Mac insured conforming mortgages.
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It’s pretty simple without digging into all the technical stuff involved with Fed policies and interest rate changes. If you’re in an adjustable rate mortgage, which will be effected directly by the raising of the Fed Funds rate, you’re safe for now but make your move by years end.
Adjustable rate mortgages, your HELOC for example, is down significantly from where it was when this whole mess started. You’re likely paying at an interest rate at or below 4% on your beloved Home Equity Line of Credit, which also probably was frozen due to a lack of equity in your home. That super low rate you’ve enjoyed for the past 18 months or so will rise with the Fed Funds rate until it reaches a more normal level of between 6 and 8%.