What are Mortgage Rates REALLY Based On...and What Causes Them to Move?

Mortgage and Lending with Premier Nationwide Lending, NTFN #75333 RMLO #252686

Whenever the Fed announces a Fed Funds Rate cut as they did last week, the Media typically gets it wrong which leads to much confusion for the consumer.  Since the Fed cut last Wednesday, several people have contacted me expecting this will mean lower long term rates.  WRONG.  Since this might seem confusing, let's unpack this...

The Federal Reserve Bank controls the Fed Funds Rate, an interest rate that banks lend money to each other for overnight borrowing and this Rate is most commonly tied to Home Equity Lines of Credit , Auto Loans and Credit Cards.

Whenever the Fed decides to take action, either by cutting or hiking, it bases its decision on two factors - promote economic growth and maintain price stability, which means keep inflation in check.  Last week, the Fed cut by an aggressive .50% to help spur the economy.  The lower FFR, brings down the rate on the aforementioned types of loans.  But what a cut also does is make the cost of money cheaper to the consumer -  this can be inflationary.  And inflation is all you have to follow to see how long-term Bonds and home loan rates are doing.  If inflation ticks higher, Mortgage Rates higher as well.  If inflation remains in check, home loan rates will be stable to improving.

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