Sun Nov 08 2009
By HEATHER BAUGHMAN
Lowered loan payments are expected for many Americans in the near future as borrowers begin to see the effects of the Federal Reserve Board rate cut made last week. This stimulus should create greater savings on loan payments ... and a little extra money, the government hopes, to spend elsewhere.
As interest rates fall and Congress debates ways to stimulate the economy, Americans are left to decide what to do next: spend the extra money that they are saving from lower interest rates, or stash it away for what believe is an impending recession.
As the economy gets a jump start from the lowered federal funds rate cut, which was slashed three-quarters of a percentage point to 31/2 percent Tuesday, borrowers are reassessing their current situations. One immediate result was an onslaught of customers calling their lenders to lock in lower mortgage rates.
"We have had a surge in mortgage applications in the last two days," Rurban Financial Corp. president and chief financial officer Kenneth Joyce said Thursday. Most applications have been from borrowers who are looking to take advantage of loans such as Wednesday's 15-year loans with the interest rate under 5 percent, which the State Bank and Trust Co. had offered this past week, Joyce said.
Sonja Delaney, president and CEO of Midwest Community Federal Credit Union, said Thursday, "We did our highest volume (of locking in mortgages) ever in one day." In fact, the credit union did about a month's worth of mortgage business on Wednesday alone.
Though mortgage rates have started edging up since Wednesday, business is still going extremely well for area lenders.
"The phone has just been ringing off the hook," Delaney said, with people taking advantage of interest rates on Wednesday of 5.125 percent for a 20-year loan and 5.25 percent for a 30-year loan.
As the nation adjusts to the drop in interest rates, and with potentially more to come, mortgage lenders will continue to be kept busy as homeowners start to make sense of the economic impact.
"Certainly everyone needs to take a look at their home mortgage," Joyce said. If they can lock in a new rate at half a percent or 1 percent under where they are now, this would be a good time to refinance.
But refinancing might not be for everyone.
"You really have to look at what your savings are going to be," Delaney said, and take the time to figure out refinancing expenses such as appraisals and closing costs. "Make sure that what you're going to save on a monthly basis outweighs what you will pay in closing costs," she advised.
Others looking to take advantage of lower rates are borrowers with an adjustable rate mortgage, or ARM.
How long these incredible rates stick around is anyone's guess.
"In the past, I could usually predict what (the rates) would do," Delaney said. "Now, there seems to be no rhyme or reason" when rates start to go up or down. "It's hard to say how long these rates will stick around." Her best guess: "I'm thinking at least a couple of months."
Though borrowers and lenders are taking advantage of the federal funds rate drop, it's not been a pleasant ride for everyone.
Instead, some people invested in money markets and renewing certificates of deposit are feeling the pinch of lowered rates.
"The overall effect (of the Fed's rate cut) certainly should be positive for the national and local economy," Joyce said, though the full "impact typically takes six to nine months to work its way through the economy."
By dropping the federal funds rate, the Federal Open Market Committee was taking "action in view of a weakening of the economic outlook and increasing downside risks to growth," according to the Federal Reserve. "While strains in short-term funding markets have eased somewhat, broader financial market conditions have continued to deteriorate and credit has tightened further for some businesses and households. Moreover, incoming information indicates a deepening of the housing contraction as well as some softening in labor markets.
"The committee expects inflation to moderate in coming quarters, but it will be necessary to continue to monitor inflation developments carefully," the Federal Reserve stated.
As the economy settles into the effects of the rate cut, "the committee will continue to assess the effects of financial and other developments on economic prospects and will act in a timely manner as needed to address those risks."
Comments
By Posting to this site, you agree to our Terms of Service Be polite.
Inappropriate posts may be removed.
Crescent-News.com doesn't necessarily condone the comments here, nor does it review every post.
Login above or Register to comment.
0 Total Comments Home | Back
Copyright Defiance Publishing, LLC 1995-2009. All Rights Reserved.
Content may not be republished without the expresse written consent of the publisher.
Content may not be republished without the expresse written consent of the publisher.
Dix Communications