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July 1995

Interest Rate Trends

Last month was certainly a rocky road. After interest rates dropped to their lowest point in two years, some better than expected economic news caused an upward spike. The market feared the Federal Reserve would not lower rates, however; more bad economic news followed. When the Fed did meet, they dropped the "Fed funds" rate. (fed funds = the short term interest rate banks pay their regional Federal Reserve branch ... if they need to borrow funds to meet the Federal Reserve's requirements.)

This marked the first time that the Fed lowered rates since the last recession. Now, we must wait and see how the markets will react to upcoming economic reports. The general forecast is for steady to slightly lower mortgage rates. Individuals purchasing a home or refinancing an existing mortgage may want to lock their rate in during the next dip in rates.

The Real Estate Market

Sales of new and existing homes have improved or remained stable throughout most of the United States. The lower rates should help individuals qualify for larger payments, and therefore, more house. Typically speaking, a homebuyer today can pay $10,000 - $30,000 more for a house, and keep the same payment, then if they had purchased in the last two years. Anyone purchasing within the last two years should be taking a close look at re-financing.

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