The Fed interest rate reduction may affect mortgage rates

APPLETON, WI – (WGBW & WISS) – The U.S. Federal Reserve made a ½ percent cut on interest rates last week. What does the first interest rate reduction in over 4 years mean to people looking to buy a home? Will that reduction affect mortgage rates?

Kristen Ambos of Point Mortgage in Appleton said people were surprised that mortgage rates didn’t come down with the announcement of the rate cut.

People correlate the mortgage rate with the Federal Reserve rate. And so they thought ‘Oh my gosh, rates are going to fall by a half percent?’ That did not happen. Rates were left relatively unchanged,” said Ambos. “So that’s kind of the surprise to people.”

Ambos explained that mortgage rates are not the same as the Fed’s interest rates. 

“The mortgage rates will follow the Federal Reserve. But it’s not a direct indicator of the mortgage rate,” said Ambos. “It’s a direct indicator on the rates that the banks are borrowing at. So that’s coming down, but remember that the bank will add two to three percent so that they can make money. So that’s where the mortgage rates are going to be.”  

She added that there will be competitive pressure for the mortgage rates to come down. 

In the meantime, Ambos advises people to be careful of predatory lenders who will be coming out of the woodwork with the change in interest rates. 

“They’re foaming at the mouth to refinance because this is their get-rich quick in the next few months. Make sure you understand exactly what your fees are. If they tell you that there are no fees. They are probably wrapped in your loan amount. There’s fees. You’re just not coming to the table with any money,” Ambos explained. “And you roll everything into your loan. Then in 6 months, rates are down further and you want to refinance again. And you roll them in again. Your principal balance can go up really quick.”

The Fed’s previous rate was 5.33% earlier in September. The effective rate now is 4.83%.