Thankfully the Federal Reserve cut the prime interest rate, but to whom will these benefits help? That is the question I have been getting and hearing around the web.

First of all, it should give the borrower with an adjustable rate mortgage a break. We had previously covered the bubble of adjustable rate mortgages that are expected month by month to reset (chart here) and in the next 6 months we should experience the peak. With foreclosures hitting record highs in August and more than double the resets expected in March of next year, any sort of interest rate relief should have powerful repercussions across the mortgage industry.

Fixed mortgages should come down a little but they will move slowly. What these homeowners should see are a lowering of interest rates on their credit cards freeing up more money in the family budgets.

The other benefit is that the credit market should free up a bit. More money available in the credit markets may allow the lenders to loosen up requirements just enough for families that are unable to qualify for a mortgage program and lose their home to foreclosure to get into a more advantageous mortgage.

And while Washington stews coming up with legislation to fix the market, the market fixes itself. What a surprise…

“People with an adjustable-rate line of credit on their homes — or anything that’s tied to prime rates — will almost instantly get half a percent lower” on their monthly bills, said Rich Bira, branch manager for First Capital Mortgage in Chicago. If they were paying 8.75 percent Tuesday on a line of credit, next month it will come down to 8.25 percent, he said. “That’s instant relief.”

And, though it will take time, it could ripple through the rest of the system.

“Other indices [on which mortgage rates are based] are probably going to go down as a result,” said Donna Burge, president of Baird & Warner Financial Services in Chicago.

“The more important effect on consumers is that [the cuts] will lower costs on credit cards, and that should spur spending,” she said. That would help the economy, including housing. via the chicagotribune.com.

Related posts:

1. US Rental Vacancy Rate Highest in 23 Years
2. Fed Drops Interest Rates To Near Zero
3. Mortgage Lending Drops as Interest Rates Rise – Surprised
4. Interest Rates Rising – Mortgage Activity Slows Down 16 Percent
5. Commercial Real Estate Meltdown Keeps Federal Reserve From Raising Interest Rates