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How does the Fed Rate Cuts affect interest rates?

By
Mortgage and Lending with First Priority Financial

You see the advertising on TV, you hear the ads on the radio, the Fed has cut interest rates, rates are down. Call now to refinance. 

The news people speculate about the fed cutting rates and this starts the discussion around the water cooler at work that now isn't the time to refinance.  The Fed will be cutting interest rates, you better wait.  So does the Fed cutting rates really make a difference?

What the lay person or the uneducated loan officers don't know is that the Fed cutting interest rates doesn't mean much unless you're discussing home equity lines of credit.  These types of loans have variable interest rates that are tied directly to the prime rate.  When the Fed cuts rates, you benefit.  When the Fed raises rates, your interest rate goes up on your home equity line of credit.

Let's compare rates today with rates from last year.  In November 2007, when the Prime Rate was 7.5%, 30 year fixed rate loans were actually slightly lower priced than they are today when the Prime Rate is now at 6%.   Conventional mortgage rates are tied to mortgage backed securities, not the prime rate.   Even the 10 year bond is a much more accurate barometer for 30 year fixed rates.

Comments (3)

Jimmy McCall
JimmyMcCall.com - Cunningham, TN
The Ex-Mortgage Consultant
Cahrity,  Good post.  Welcome to Active Rain and congratulations on your first blog.  I recommend you read and comment on at least 10 blogs per day to get the most out of AR.  Good luck and happy blogging.
Feb 22, 2008 11:15 AM
Brian Hoots
Real Living Speckman Realty, Inc. - Bourbonnais, IL

Charity, Welcome to Active Rain, great to have you here. 

Feb 22, 2008 03:16 PM
The Trumm Team Omaha Homes for Sale, Real Estate
Keller Williams Greater Omaha - Omaha, NE

Welcome to ActiveRain!

If you would like a few tips on getting the most out of ActiveRain, please visit my blog Welcome to Active Rain.  It has a few simple steps of what to do now that you have joined.

If you ever have any questions, just let me know.

Troy Trumm

Feb 24, 2008 12:46 AM