Today’s rate cut by the Federal Reserve would mean lower interest rates on home equity loans and also lower rates on mortgage loans for purchasing real estate. Your monthly mortgage payment could now buy you more home than before.
After a global plunge in stock markets due to concerns about a recession Federal Reserve unexpectedly cut a key interest rate by a huge three-quarter of a percentage point. The Fed also signaled that further rate cuts were likely to come.
This reduction in the federal funds rate from 4.25 percent down to 3.5 percent marked the biggest reduction in this target rate for overnight loans on records going back to 1990. It also marked the first time that the Fed has changed the funds rate between meetings since 2001, when the central bank was battling the combined impacts of a recession and the 9/11 terrorist attacks.
In addition to cutting the funds rate, the Fed said it was also reducing its discount rate, the interest it charges to make direct loans to banks, by a similar three-quarter of a percentage point, pushing the discount rate down to 4 percent.
Commercial banks responded to the Fed’s action on the funds rate by announcing similar cuts of three-quarter of a percent on its prime lending rate, the benchmark for millions of business and consumer loans. The cut will mean the prime lending rate will drop from 7.25 percent down to 6.50 percent.