Current Mortgage Rates: What Effect Does The Federal Reserve Really Have?by Rob K. Blake
What can the Federal Reserve really do to effect the current mortgage rate?
Not as much as you think. Everyone gets excited when they hear something about the Fed lowering interest rates. They automatically think that means current mortgage rates are immediately going lower too.
A mortgage interest rate is not the same thing as the Fed rate. Other names for the Fed rate are short term rates, prime, Fed funds rate. This interest rate is the one tied to your car loans, credit cards, and home equity lines of credit. Even though a home equity line of credit is considered a mortgage, it is amortized like a credit card. That is the only mortgage affected by the Fed funds rate or Prime.
Mortgage rates are not directly but indirectly affected by the Fed moving rates. When the Fed makes a rate move it is felt by the investors. Some of these folks invest in mortgage backed securities. It is the mortgage backed securities that move mortgage rates up or down.
The Fed makes rate decisions on what is happening in the market. The unemployment number, consumer confidence, consumer price index, etc. are just some of the economic indicators the powers that be use to decide if a rate move is needed.
These same indicators are what affect the mortgage backed securities which in turn affect mortgage rates. Every day the market is analyzed using the economic indicators and a rate is established for the mortgage backed securities.
This happens every day whether the Fed is doing his thing or not. A good way to gauge where the market is for mortgage rates is by watching the 10 year bond. When there is bad news for an economic indicator then that means good news for the mortgage market.
Investors get nervous when a bad indicator shows up and they take their money out of the stock market where they feel their money may be at risk and put it into a safer place like the 10 year bond. When money floods into the 10 year bond it drives the price up but the yield down. When the yield is down then current mortgage rates go down.
When there are good indicators and news the investors take money out of the 10 year bond and put it back into the stock market. They can make a better rate of return in the stock market then in the 10 year bond. When they feel safe that the economy is rebounding then the stock market is the place to be. The 10 year bond price goes down and the yield goes up so the rates go up.
If you want to track current mortgage rates because you are thinking of buying or refinancing then do not listen to everyone else and certainly do not listen to the Fed. Check out a financial website and track the 10 year bond.
Remember, when the yield is up then mortgage rates are up and when it is down then they are down. Rates move every day and sometimes if good or bad enough news comes in during the day, they can change in that same day.
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