The Fed Cut- Mortgage Rates Are Down, Right?

Mortgage and Lending with Stearns NMLS #232164 CA BRE #01380812 BRE 01380812 NMLS 232164

Not everyone wants Ben Bernanke's job, but this is a funny YouTube parody of Glen Hubbard, Columbia Business School's Dean who was tagged by the media as a potential successor to Greenspan. The students who created this parody obviously thought Hubbard could do a better job heading the Federal Reserve than Bernanke.

Most of us just want to know how the Fed Cuts effect our mortgage interest rates. My San Francisco Bay Area clients considering a Real Estate financing transaction ask me this frequently.

To answer the question, Rates are down after a Fed Cut, right? The answer is Yes and No.

The Fed Funds rate directly impacts home equity lines, credit cards and LIBOR based ARMs and often makes the long term mortgage rates dip initially, then go higher.

Why? Long term mortgage interest rates are tied to something called mortgage backed securities.

The Fed lowers the funds rate in order to stimulate the economy. When the economy is stimulated, the stock market improves, and when money flows into stocks and out of mortgage backed securities (or bonds), interest rates on long term mortgage loans go higher. The mortgage bond market is sensitive to inflation, and economic improvement often comes with inflation, thus bonds worsen, and long term mortgage rates rise.

Because interest rates have been so volatile, with I advise my clients to apply right away if they are considering refinancing. I present debt strategy and we select their loan product. If the rates are not in our target zone, we wait until they are, at which time I grab and lock the loan.

For my purchase clients, I show them how I track mortgage backed securities throughout the day on my cell phone and closely follow economic reports that impact rates, and float or lock accordingly after selecting a debt strategy and loan program.

Make sure your mortgage professional is tracking mortgage backed securities throughout the day to protect you in this volatile market. And make sure they know what Fed cuts and hikes mean to rates.

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Mary Anne S. Daly

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