What are YOU Focused on! Fantastic News For Interest Rates, Every Person that ever Borrows Money and The Real Estate Market! It’s all a matter of PERSPECTIVE! STARE Too Closely and you miss what is really going on! Positive NEWS! The Federal Reserve has lowered key interest rates to zero, 0, null, nada!
That sounds good, BUT what does this mean for you and me? Here is my attempt to explain this in very simple terms what this might mean for you and me. So hopefully you will have a better understanding of what's going on and how you can take advantage of this coming bonanza when all this Corona stuff blows over!! I will keep this short and sweet. If you're an Econ or Finance wizard skip this video/blog. This is going to be very basic and simplified.
The Federal Reserve did 3 things this week to help boost the economy and they are VERY helpful and positive. These actions might take a while to take effect but when they do I KNOW we will see LOWER interest rates and HUGE savings for us as consumers and business people!
1st the Federal Reserve cut the FED funds rate to zero.
2nd the Federal Reserve removed reserve requirements for banks and institutions lending money.
3rd The Federal Reserve has instituted a buyback program
Let me explain what each one of these means to us
1st the Federal Reserve cut the FED funds rate to 0. This is the rate that banks and large institutions can borrow for their short-term needs. This has an effect on our mortgage rates, auto loans, adjustable-rate mortgages, student loans and credit cards to name a few. The federal funds rate is a component that makes up the interest rates we pay on all kinds of borrowing.
For example, a car loan could look something like the FED funds rate 0% Plus 3% or an adjustable-rate mortgage could be the FED funds rate 0% plus 2%.
So if the Fed FUND Rate is Zero the interest Rate you pay will go down!
You can NOT just walk into your bank and say I want one of those 0% loans. The Feds Fund Rate is a part of what goes into the interest rate you and I pay.
2nd the Federal Reserve removed the reserve which banks were required to have. Basically, banks were required to hold a RESERVE in the bank and then lend the rest of the money they have on hand. Now as of this week there is NO reserve requirement. They can lend more money and make it easier and cheaper too for us to borrow MONEY.
3rd the Federal Reserve has bought back Treasury bonds and Mortgage-Backed securities on the open market. They have bought a total of $700 Billion - $500 billion in treasury bonds and $200 billion in mortgage-backed securities. The simplest way for me to explain this with this example:
Say You lend me $100. You would have to take $100 out of your pocket and give it to me.
Then I would owe you $100 plus interest and I would give you a note we both sign, stating the terms of the loan. This leaves you illiquid! $100 cash came out of your pocket……….. NO CASH. Well, the Federal Reserve comes to you and says hey I'll give you $105 cash in return for the $100 note Ed owes you. You Give the Federal Reserve the Note we signed and they give you $105 cash. NOW you have $105 you can lend $100 and spend the $5 or whatever you want you. Now you are Liquid and HAVE CASH! $105 BUCKS!
Ok, this is a VERY simplistic explanation of a very complex process and how all this works but this gives you the overall understanding of what's going in. Hopefully, this helps you understand what's going on with interest rates a little better! If you have any questions or comments please leave them below. #teamyannett #myhomesavannah #isleofhopega #isleofhope #savannahga #savannahrealestate #federalreserve