The Federal Reserve has less of an impact on mortgage rates than many people think. Remember, the vast majority of mortgage interest rates are based on Mortgage Bonds and Mortgage Backed Securities, not prevailing federal interest rates or 10-year Treasury bills.
While it’s often true that 10-year T-bills or mortgage backed securities rates can be viewed hand in hand, there are times when the rates of each of these investments is moving in entirely different directions.
Also, when the Fed “lowers rates”, what’s really happening is that short-term credit rates are being lowered. Rates on credit cards, credit card offers, car loans, and even bank loans will fall, but longer term loans like mortgages won’t necessarily be affected.
The market is rapidly fluctuating all the time. Investors who see opportunities with short term stimulus cash will convert their bonds into stocks. So, a massive selling of mortgage backed securities then drives interest rates up. This is why it might be smart nowadays to avoid Adjustable Rate Mortgages, unless you’re willing to take a big risk on prevailing interest rates.
When the Fed cuts rates, mortgage rates will be affected very gradually. If you take a look at history, you’ll see that after a massive Fed cut, mortgage rates remain generally unaffected.
The Fed will affect these rates somewhat, but it’s nearly impossible to pinpoint exactly how and when rates are affected. Never, ever wait for an anticipating Fed cut to lock in a loan. Remember that when the Fed cuts rates, mortgage rates actually spike for a brief period of time. As a result, if you’ve found an interest rate that you like and you want to purchase a mortgage, don’t wait.
