Tuesday, September 2, 2008

When the Feds cut rates, will mortgage rates go down to?

When the Feds cut rates will interest rates go down??

Previously, the Federal Reserve has lowered the Fed Funds Rate by 0.500%. In response, mortgage rates go up, not down.
This surprises a lot of people when we tell them that.
Remember: the Fed Funds Rate and mortgage rates are not related. When the Feds "cut rates", it's working on an overnight interest rate between banks. By contrast, mortgage rates are based on long-term securities between bond market traders.
When the Feds cuts the Fed Funds Rate, it is meant to stimulate the economy and that makes inflation more likely. Inflation, of course, erodes the value of the dollar and, therefore, the value of mortgage bonds.
This is why mortgage rates have gone higher after each of the Federal Reserve's four most recent rate cuts. The bigger the cut, the more the increase to mortgage rates.
Call or email me michele@wantinsight.com anytime. I am happy to serve you.
God Bless!

Michele "MAC" A. Cole

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