Delay until fed rate decrease hits consumers...

Let’s say the Fed lowers rates 25bps at its next meeting. How long would it take for this decrease to affect consumer rates (specifically, mortgages)? Also, would the 25bps typically be passed on in full to mortgage rates or would mortgage rates only decrease something like 15bps? This is ignoring all the other real world complications and assuming all else stays equal.

Depends on what kind of mortgage you are talking about. 30 year fixed mortgages are more strongly correlated with long-term bond yields than they are with the fed funds rate. 3 year arms are correlated strongly with short term rates. Also, with 15 and 30 year fixed loans, the anticipated change in rates will often be priced into the rates before the decision is made. If the decision is different from what the market anticipated, you may see a drop after the announcement. However, if the action is in line with what the market anticipated, it is not likely you will see much change at all after the announcement. Before the last round of cuts, ARMs were running at higher rates than fixed mortgages. After the Fed lopped off 125 basis points in the span of a week and a half, I made out like a bandit on a 5 year arm, while fixed rates were still well above my old mortgage rate. :slight_smile:

Great, exactly what I needed to know. Thanks for the response!