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The Fed and interest Rates and mortgage connection
Every one assumes that when the Fed raises interest rates mortgage rates automatically go up. So The Fed is called the villain in a housing slow down. But is this really true?
Let's start with what's what. The fed funds rate is the interest rate that banks charge each other when borrowing money. This is usually over night. The Fed sets a rate to borrow from it. That translates to what baks can charge each other. You may think that banks borrow from the Fed. But the Fed. is a lender of last resort. Why? Because if you borrow from the Fed too often the Federal Reserve has the right to audit you. Banks borrow from each other when their position vis a vis assets and liabilities are out of whack at the end of the day. So think about this if you are selling funds you can charge this interest rate. So shouldn't you LOWER your mortgage rate as you are making money!!! Fun stuff isn't it. Well with very few exceptions today's seller could be tomorrows borrower. But other than raise the general price of borrowing money the fed funds rate really has no direct tie to Mortgage rates.
What does the fed ... more
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