Federal Rate Cuts

The Federal Reserve has cut interest rates in the past to help relieve some of the stresses of the economic slowdown. Those cuts generally were made to stimulate the economy as consumer spending slowed and labor markets weakened. When the Fed cuts rates the hope is that it will make money cheaper to borrow and help keep the U.S. economy from going into a recession. Because of recent rate cuts, the U.S. has some of the lowest federal rates seen in many years--and the Fed isn't likely to raise rates until at least 2009.

So how are you affected when the Fed cuts rates? If you have an adjustable rate mortgage you may actually see your monthly payments go down. That decreased payment could be exactly what's needed to keep you current on your mortgage. But if you're already behind on home loan payments, a rate cut by the Fed isn't likely to stop the foreclosure process.

In recent years low interest rates helped many people become first-time homeowners. Some of these people took out mortgages they couldn't really afford and are now in over their heads. As a result, foreclosures have risen to record levels and many lenders are scrambling to deal with all the bad loans on their books. If you're able to refinance an adjustable rate mortgage into a fixed-rate loan, tat may help you get your payments under control. But many homeowners hoping to refinance are being denied approval because banks are so skittish about lending money.

Source

Kiplinger