How Do the Fed Cuts Effect Mortgage Interest Rates?

Colleen Mitchell has been in the lending field a long time and she's great at her job. I've used her services on many occasions and I trust her expertise. I asked her to write a short summary on what the recent Fed Cut would mean for mortgage rates:

How Do the Fed Cuts Effect Mortgage Interest Rates?

So the Federal Reserve cut rates! What does this mean for consumers who are thinking of purchasing or refinancing a home? Many mortgage applicants are calling Countrywide and expecting a lower interest rate. Others who have been waiting to refinance are puzzled as to why mortgage rates have not moved lower after the recent .50% Fed rate cuts. Is a Fed rate cut really good news for mortgage rates? Here are the facts: The Fed can only control the Discount Rate and the Fed Funds Rate. This is very different from mortgage rates. A mortgage rate can be in effect for 30-years, a rate that is set by the Fed can change from one day to another. Another common mistake is in thinking that 30-year Treasury bonds or 10-year Treasury notes are directly pegged to mortgage rates. Those are government securities that are backed by the full faith and credit of the U.S. government and have no direct effect on mortgage rates.

So what are mortgage rates based on? As it turns out the answer is mortgage-backed bonds known as Mortgage Backed Securities (MBS). Bonds issued by Fannie Mae and Freddie Mac (MBS) and the trading performance of those bonds will determine the direction of mortgage rates. As bond prices rise, interest rates fall. As bond prices fall, interest rates rise. The consistency of this behavior is astounding. Fed rate cuts have had virtually no direct effect on mortgage rates. In fact mortgage rates are now higher than they were before the recent Fed cut of .50%.

Bottom line rates are still very low! It is a great time to buy or refinance! For more information please contact me directly!

Colleen Mitchell
950 Market Promenade Avenue
Suite 2201
Lake Mary, FL 32746
(407) 333-7461
Website: www.colleenmitchell.com

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