How To Explain The Fed and Rates - Part I

Mortgage and Lending with Dan Dowling - United Mortgage Capital Corp.

"Hey, I See The Federal Reserve Is Lowering Rates! What Does That Mean For Me?"

Great question. First some definitions. Some interest rates the Federal Reserve controls, some it influences, and some it has virtually no control over.

For starters, understand that the Fed has no control over your standard 1st mortgage rates. None, nada, zilch. I'll prove it in a minute, but for now just accept that at face value.

Let's look at three popular interest rates you hear every time the Fed's name comes up.

Fed Discount Rate: This is the rate at which the Fed lends money to member banks for overnight loans. Yep you heard right "overnight" as in you got 24 hours to pay it back. This money is available so banks can keep the right amount of "reserves" in the bank. The Fed "dials in the Fed Discount Rate.. It directly controls it at will. Incidentally this rate is usually about 1% higher than the "Fed Funds Rate" which we'll talk about next.

Hope this helps. To be continued in Part 2

Dan Dowling


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