The Fed Cuts Rates, But Where Does That Leave Mortgage Rates?
The Federal Reserve has been all over the news the past few weeks as further fall out from the housing market continues to erode the credit markets. The stock market has seen dramatic rises and falls with companies facing bankruptcy due to restricted lending conditions in the secondary market. The Fed took a bold step in trying to address concerns regarding liquidity on Tuesday when they lowered the Fed Funds rate from 3% to 2.25%. The move to reduce the Fed Funds rate by .75% was favorably received by wall street, which saw the stock market jump by over 400 pts in trading.
The impact of the Fed Funds rate reduction on the mortgage market will take more time to determine. Home owners who are presently in adjustable rate mortgages will benefit as their future interest rate adjustments are typically tied into an index that will benefit from this rate reduction. Consumers who have home equity lines of credit attached to prime, should see an immediate benefit with the interest rate reduction in their house payment. Most credit card interest rates should also begin to decline as they are generally attached to the prime rate. The majority of mortgage rates, especially those that are fixed for long periods of time will not have a direct benefit from the Fed's rate reduction. The main reason these reductions don't carry through to mortgage rates is that mortgage rates are not directly linked with either prime or the Fed Funds rate. Mortgage rates are determined by the open market and are a tangible result of mortgage backed securities. The market for mortgage backed securities fluctuates on a daily basis and creates increases and decreases for mortgage rates based on this market. Typically mortgage rates will move with actions that have a large influence on the market as investors move into, or away from instruments that are believed to be a safer investment. For example, items such as the consumer price index (inflation report), housing starts, job employment figures are large influences on the direction of mortgage rates.
The best way to gauge what direction the mortgage market is moving is to follow the overall trend of the stock market. Components such as the ten year treasury bond are a leading indicator of where mortgage rates are likely to move. The mortgage market has been extremely volatile this year, so it's a good idea to be prepared to act quickly to secure the best rates.
You can utilize these resources to research more information on loan rates or current mortgage rates and home refinancing
Source: http://ezinearticles.com/
Added: March 22, 2008
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