Whether you are a real estate professional or an investor, its wise to fully understand the consequences of the Federal Reserve’s recent rate cuts. On December 16th the Fed lowered its Federal Funds target rate to a range between 0% and .25%.

Outlined below are five ways that the Fed’s actions will effect you:

1. Fixed mortgage rates
Believe it or not the Fed rate cuts do not directly impact the 30–year fixed mortgage. However, the Fed reiterated that is was looking at the possibility of buying long-term Treasury bonds which could work to bring rates even lower.

2. Prime Rate Loans
The most immediate impact of the Fed’s rate cuts is going to be felt by consumers with loans that are tied to the prime rate. The Prime Rate is currently 3.25%. Home Equity lines of Credit and credit cards with variable interest rates tied to the Prime Rate will be immediately effected, thus saving borrowers money.

3. Home Equity Savings
Home-equity loans averaged 5.5% in October but dropped to 5.26% in November following the Fed’s half point cut. Economists expect home equity lines to see similar declines as a result of the 12/16 rate cut.

4. Target Vs. Effective
Fed rate cuts reduce banks cost of funding, which allows them to widen profit margins and pass
along savings to consumers in the form of lower interest rates. However, today’s markets may not pass along the savings immediately to consumers….

5. Now What??
The Fed does not expect to reverse its course anytime soon. The Fed anticipates that weak economic conditions and the threat of deflation are likely to warrant exceptionally low levels of the federal funds rate for quite some time.