Pam Franzen
Mortgage Consultant
Charter Funding
Phone: 262-745-2272
Fax: 262-997-1152
pamela.franzen@charterfunding.com
The Federal Reserve and Mortgage Rates
Understanding What Causes Interest Rate Movement
The Federal Reserve constantly evaluates the US economy and, when
necessary, takes steps to address inflationary concerns and avoid economic
recession or depression. The mass media, in turn, reacts by providing a wide
range of opinions and interpretations of the Fed's monetary policy. This can
make it very difficult for consumers to decipher how such actions will influence
interest rates in general and mortgages in particular.
And although actions of the Federal Reserve can have a direct impact on the
Prime rate, mortgage interest rates are dictated by the trading of
mortgage-backed securities, which are similar to bonds and trade on a daily
basis. This means that the real dynamic at the heart of interest rate movement is
the competitive relationship between stocks and bonds.
Stocks, bonds, and mortgage-backed securities compete for the same investment dollars on a daily basis. There is
literally only so much money to be invested. When the Federal Reserve feels that interest rates need to be decreased in
an effort to stimulate the economy, this reduction in rates can often cause a stock market rally. When the market becomes
bullish, the money to invest in stocks comes from the selling off of other investments, including mortgage-backed
securities.
Unfortunately, when mortgage-backed securities are sold off to fuel stock market rallies, this causes interest rates to go
up, not down.
Historically, there have been many instances where the Federal Reserve has increased interest rates, arousing fears that
corporate profit margins would be affected. This resulted in stocks being sold off, leading money managers to search for a
place to invest their newly liquidated assets until the next market rally. One such safe haven has been mortgage-backed
securities, which cause mortgage rates to drop.
The daily ebb and flow of money is what matters most when it comes to the movement of mortgage interest rates. I make
it a point to continuously monitor interest rates for my clients and advise them of opportunities to manage their mortgage
debt at a better rate. This is the foundation of my business model as a trusted advisor.
If media reports have led you to second guess whether it's a good time to purchase a new home, give me a call.
We'll analyze your financial situation together and create a plan that's right for you
Comments(1)