Consumers are eager to think that when the Federal Reserve cuts interest rates, it means that they should call their friendly neighborhood mortgage broker and inquire about refinancing their home loans. It doesn't always work out that way.
Re-financing remains a great way to build wealth and get the maximum benefit out of home ownership. But consumers should not expect that a Fed Rate cut will be immediately reflected in the kind of interest rate they are offered.
Over the past two months, the Fed has cut the federal funds rate by 2.25 points, to 3 percent. This is the rate banks charge each other for overnight loans. The Fed also cut the discount rate, what it charges banks for funds, by 1.75 points, down to 3.5 percent.
So what has been the result? Well, the mortgage rate for A-list borrowers has come down a bit. But risk is still the boogey-man that is scaring off lenders. Any factor which lenders perceive as increasing the risk of default will bump a borrower's rates up beyond what they were when the Fed began the latest round of rate cuts.
We are still in an unsettled loan market, and everything the Fed has done lately hasn't been able to change that.
