Fed’s rate cut affecting mortgage rates differently

While pundits debate the economic jolt from the Federal Reserve’s interest rate cut last week, the unexpectedly generous half-percentage-point reduction is rippling across parts of the mortgage scene.

For borrowers with home equity lines of credit, rates began falling on the variable-rate loans tied directly to the prime rate, which has been on the decline with the Fed’s new 1.25% federal funds rate. Rates on adjustable-rate mortgages, or ARMs, could fall too.

But borrowers in search of lower fixed-rate, 30-year mortgages are not likely to see much change in these rates, which are linked to 10-year Treasury notes, not short-term rates. The Fed’s cut was the first this year -- after 11 reductions in 2001.