Mortgage Leader Discusses Impact of Fed Rate Cut on Home Lending

Originally published on U.S. company blog

On Sept. 17, the Federal Reserve announced a quarter point interest rate cut, it's first of the year. To understand how this rate reduction may impact both homebuyers and homeowners, we sat down with John Hummel, head of retail home lending at U.S. Bank.

Let’s start with the homeowners. What does this interest rate cut mean for homeowners looking to borrow against their home equity?

Home equity has been in the headlines lately as increased home price appreciation over the last several years has resulted in record levels of home equity. For homeowners, this equity can be borrowed using a or to fund major expenses such as home improvements or repairs, college tuition or to consolidate debt.

With the prime rate now reduced, home equity borrowers may see lower interest rates available to them, depending on the home equity solution they chose. HELOCs, for example, allow borrowers to make multiple draws at a variable rate up to their pre-determined limit. New and existing HELOC borrowers may see a small reduction in interest rates on new draws.

For home equity loans, which allow you to borrow a lump sum at a fixed rate, new applicants may see a slight reduction in the interest rate being offered.

What about aspiring home buyers. Does the recent interest rate cut mean mortgage rates will come down? 

In early September we experienced our highest daily applications for the year. That’s because even before the Federal rate cut, we have seen some pockets of easing mortgage rates over the last few months. This has already provided some relief to buyers actively house hunting and making offers. For homeowners who bought a home in the last few years, this also presented an opportunity to refinance, especially for larger balance loans where a slight drop in rates can have an impact.

The recent gradual decline is in large part because mortgage rates are more closely tied to bond markets and the 10-year treasury yield than the prime rate. This correlation means that in many cases, future interest rate cuts are baked into current mortgage rates. That’s why when the Fed reduces the prime rate, we often don’t see any immediate movement on mortgage rates.

What’s your best advice right now for homebuyers?

If you are in a position to buy a home or plan to be in the months ahead, meet with a knowledgeable mortgage loan originator first. A mortgage professional can help you understand what you can afford, what potential payments could look like inclusive of taxes and insurance and any special programs you might qualify for, such as downpayment assistance.

There are nearly 2,500 downpayment assistance programs available throughout the U.S., including programs offered by state and local agencies, as well as mortgage lenders. For example, U.S. Bank offers the in 31 states and the in 10 markets.

Any advice for homeowners?

It may be a good time to explore your home equity lending options for upcoming expenses. Talking to a mortgage loan professional can help you understand your options and borrowing power using your home equity.

If you are nearing retirement, applying now for a HELOC can be a smart financial move. With U.S. Bank there is no fee to apply and doing so pre-retirement allows you to factor in your current employment income, which can impact your application outcome.

To learn more about U.S. Bank home lending solutions, visit usbank.com/homeloans