Is there any relation between the Federal rate cuts and the mortgage rates? [mortgagedealstips.blogspot.com]
www.bestsyndication.com Have you ever wondered why banks continually change mortgage interest rates? There are many factors that help lenders determine both fixed rate and ARM mortgages. This video will explain how the interest rate is determined. There are many factors that affect mortgage rates including government bonds, rates that the government sponsored enterprise charge and the London Interbank Offered Rate. In this information program, we will discuss how these benchmarks are used to help bankers determine mortgage rates. One common benchmark cited for determining mortgage rates is the Federal Funds rate. This is the rate that banks charge other banks for overnight operations. That rate is currently in a range between zero and 0.25 percent. The discount rate is the Federal Reserve's primary interest rate. This is the rate that the Federal Reserve, also known as our central bank, charges member banks. Unlike the Federal Funds rate, the Federal Reserve Bank has absolute power in determining this interest rate. The current primary rate for the member banks is 0.75 percent. Banks that are not eligible for this primary rate are charged 1.25 percent. A third seasonal rate is for small depository institutions that need to meet seasonal requirements. The Prime Rate is what banks charge their best customers, usually corporations and large companies. This rate is typically 2.5 to 3 percent above the Federal Funds rate. These rates rarely change, so why do mortgage rates ...
mortgagedealstips.blogspot.com How Do Banks Determine Mortgage Interest Rates?
You may wonder whether there is any relationship between the Federal rate cuts and the mortgage rates. You will notice that even after the announcement of U.S. Federal rate cuts there is not significant reduction in the rates of mortgage loans. In reality, the rate of mortgage depends only on mortgage bonds or securities. It has no connection with the Treasury bill performance. In practice, it is the Mortgage backed securities that affect the rates and not the Treasury note.
You are always tempted to look into the internet for measuring the rates of Treasury bill when you plan for home loan for your new house. Unless you seek professional help, it is difficult to assess the nature of rates in mortgage business. The securities causes fluctuation in the rates of mortgage and it will be confusing you to arrive at good decision.
The stock market changes at a faster pace than your expectations. So, the investors are tempted to invest in bonds from the dollars obtained from selling mortgage backed securities and change them into stocks or debentures. On account of this, there is a sudden surge for stock market and most of the investors sell their MBS to convert them into shares. The ultimate result is the increase in the rates of mortgage.
Most commonly, people are taken away by the temptation that Federal rate cuts will reduce the mortgage rates. There may be some fall but not up to the prediction in the media. If at all the rates go down, it happens very slowly and not suddenly. On the whole, the Federal rate cuts have least influence on the rates of mortgage and do not fall prey to media hype and campaigns. More Is there any relation between the Federal rate cuts and the mortgage rates? Topics
