Can someone explain what .5% rate cut means to the mortgage rates to first time homebuyers?
In: Economics
When you go to the bank and get a loan, the bank isn’t really lending you their money. The bank is borrowing that money from the Federal Reserve, giving it to you, and charging interest for the loan. The bank borrows it at 5.5% from the Fed and they loan it to you at 7.0% meaning they get 1.5% to keep themselves.
When the Fed cuts rates, it means banks can borrow money cheaper from the Federal Reserve, which means they can lend it cheaper to people like you and me. Now the bank can borrow at 5.0% and lend at 6.5%, they still make their 1.5% and cheaper rates for them means cheaper rates for you.
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