How does the reduction of interest rates by the Fed’s affect mortgage rates?
Many thanks to Ethan Jarvis, Mortgage Consultant with Carolina Residential Lending, for sending this link along with his comments about the relationship (or lack thereof) of the prime rate and how it relates (or doesn’t) to mortgage rates. If you would like to consult with Ethan, you can reach him at 919.656.6647 or send him an email at ethan@carolinaresidentiallending.com
“This is a great article explaining the how and why many times fixed rate mortgages do not follow the Fed cutting rates. To sum it up, the Fed reduced the Fed Funds rate and the discount rate last week. The fed funds rate is what prime rate is based on. So when they cut rates last week it lowered HELOCs (Home Equity Line of Credit) and credit card rates. The discount rate is what banks are charged from the Federal Reserve discount window. Neither of these rates have a direct bearing on how the 30 year fixed rates with perform. As we have seen in the past, many times when the Fed reduces the Fed Funds rate, fixed rates actually increased. The bond market dictates how fixed rates move. Many times people are confused to why fixed rates are not lower after a rate cut. I hope this helps you explain to your customers how it works.”
Article Link: http://bankrate.com/brm/news/fed/20071102_Fed_mortgages_differences_a1.asp
