As you probably already know, the Fed surprised the market yesterday with a 50 basis point cut in short-term interest rates. Most investors had been expecting a 25 basis point cut, so yesterday's news sent the market soaring. Aside from rising stocks in the short run, what can we really expect to gain from yesterday's cut?
While many people are thinking that yesterday's cuts will help homeowners struggling to keep up with their mortgages, the sad fact is that this may not turn out to be the case. One of the more troubling trends that we have been seeing recently is the mass rise in foreclosures across the country. The majority of these foreclosures are happening to homeowners who bought their homes with adjustable interest rate loans. Sadly, these borrowers may see little relief from yesterday's Fed decision.
The reason why adjustable rate mortgage holders will not benefit from the cuts is that the majority of these loans are not tied to U.S. interest rates, but instead are tied to the London interbank offered rate, or Libor. And Libor is still sitting well above the Fed funds rates.
While many people are thinking that yesterday's cuts will help homeowners struggling to keep up with their mortgages, the sad fact is that this may not turn out to be the case. One of the more troubling trends that we have been seeing recently is the mass rise in foreclosures across the country. The majority of these foreclosures are happening to homeowners who bought their homes with adjustable interest rate loans. Sadly, these borrowers may see little relief from yesterday's Fed decision.
The reason why adjustable rate mortgage holders will not benefit from the cuts is that the majority of these loans are not tied to U.S. interest rates, but instead are tied to the London interbank offered rate, or Libor. And Libor is still sitting well above the Fed funds rates.
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