What? The Fed lowered the Fed Funds rate today .75% and mortgage rates went up? Yep, that's right. That doesn't make sense. I thought if the Fed lowered rates, mortgage rates would follow? Nope that's not how it works.
"Mortgage rates frustrates buyers" was a timely article in the Denver Post this past weekend and it's a must read for every current and prospective homeowner. The point of the article, the Fed does not determine the direction of mortgage interest rates. Plain and simple. http://www.denverpost.com/business/ci_8580045
So, when the Fed lowers or increases rates, what exactly are they doing? They are increasing or lowering the Fed Funds Rate - not mortgage rates. They lower the Fed Funds rate to stimulate the economy and raise the Fed Funds to slow things down. The Fed's #1 job is to prevent inflation, but in general they are responsible for keeping the economy humming somewhere between recession and inflation - not an easy task. Why? the Fed "cuts" or "increases" typically take 6-9 months to trickle through the economy and it's not an exact science.
What you need to know is that mortgage interest rates are determined by the price of Mortgage Backed Securites. These financial instruments are traded daily and as their prices increase, interest rates come down and vice versa. These mortgage [read the rest of the article here]
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