Feds Drop Interest Rates – What Does it Mean for Michigan?

The Federal Reserve announced on Tuesday (9/17) that it is cutting interest rates by half a percentage point, and all indications point to this being good news for Michigan residents.

The interest rate cut, the first in more than four years, is considered overall good news for consumers looking to buy a new home or purchase a new or used vehicle. However, the move isn't expected to make much of a difference for those who carry debt on their credit cards.

Federal Interest Rate Cut is Good News for Michigan Home Buyers

Jason Miller is an Eli Broad Professor in Supply Chain Management at Michigan State University. He tells WILX-TV that the cut is aggressive, saying some economists expected an interest cut of only 0.25 percent.

Ashley Smith is the co-owner of Oasis Realty. She tells the TV station that this week's interest rate drop has already affected mortgage rates. She notes that mortgage rates reached 7% earlier this year and are currently at 6.29%.

Mortgage Payments by the Numbers

Using those figures, we calculated mortgage payments for Michigan homebuyers who may be considering purchasing a home.

A home loan on a $400,000 home (with 20% down) for 30 years at 7.00% interest would mean monthly payments of $2,129. Total interest (if no extra payments were made) would be about $446,400.

The figures for the exact same home at 6.29% would drop the monthly payment to $1,979 and shave off roughly $53,000 in total interest.

Interest Rates for Car Loans May Decline Slowly

While the Federal Reserve's interest rate cut is overall good news for consumers, Cox Automotive Chief Economist Jonathan Smoke tells KBB.com that it is not likely auto loan rates will decline much before the end of the year.