Because the Federal Reserve cut the target for the Federal Funds Rate by a quarter point, many people have asked, "What does that mean for mortgage rates?" I’ve asked guest expert Liz Schneider, loan officer from First Place Bank, to address this question:

"This important decision has many implications and there’s still some debate among experts about what this means to the economy as a whole. While no one is certain how market volatility and inflation concerns will affect future policy and decision making, consumers may want to take advantage of this opportunity to capture a lower interest rate for refinancing or buying a home. If you have an Adjustable Rate Mortgage, while this rate cut might help to improve your situation, now is the time to refinance into a fixed-rate loan. If you have a Home Equity Line of Credit (HELOC) or credit cards tied to the Prime Rate, the Fed’s cut in the Fed Funds Rate just put a little money in your pocket.

Borrowers waiting for a lower fixed-rate mortgage may be waiting for a long time. The chart below clearly shows how Fed Funds Rate cuts do not translate into cuts in fixed-rate mortgages. In January 2001, the Fed Funds Rate was at 6% and 30-year fixed rates averaged 7.03%. By December 2001, following 4.25% in cuts throughout the year, home loan rates were actually up to 7.07%.

We may experience some temporary improvements in rates in the coming weeks, but the markets will remain volatile as long as inflation and recession are a possible threat to the Federal Reserve's long-term economic policies."