Fed Rate Cut, Doesn't Mean Rates Will Be Down

The fed's cut rates again today. Last month when they cut rates, mortgage rates went up, as they generally do when the fed cuts. So, what does the rate cut mean, and why do mortgage loan rates move in the opposite direction?

It's a complete myth that rates tick down when the fed's cut. Here's why...

The fed's rate is the rate at which banks borrower money. Sure cheaper for the bank, so why not cheaper for the home owner? It's important to understand that mortgage interest rates are NOT tied to the indices that the fed's rate is tied to, other than Home Equity Lines of Credit. HELOCS will move when the fed's adjust rates.

30 year fixed mortgages are reactive more closely to the 10 year tresury yield. Which, is not tied to the fed's. It's economic data that makes the mortgage rates move.

For example, yesterday when the fed's cut rates, mortgage rates got worse mid-afternoon, a lot worse for a one day move. As investors sell off Bonds, the price moves down, raising the yield on bonds, therefor, moving the mortgage rates up.

Today, the stock market 'crashed' so to speak. Investors pull out of the stock market and buy into the bond market for 'safety'. As investors buy into the bonds, the price of the bonds move up (supply and demand) and the yields go down. Mortgage rates closely follow.

Investors were nervous about a future non-rate cut in December and fear of inflation.

Tomorrow is a key day, with non-farm payroll numbers being released. If payrolls are off of expectations we could see even lower rates.

If you are in the process of buying or refinancing, I would suggest being prepared to have your broker lock your loan tomorrow, the second the payroll numbers come out if they are better than expected. If the numbers come in worse than expected, hang tight and lock late in the day or next monday.

If you need any help refinancing or purchasing, I can be reached directly at (818) 876-9661 or online at www.StraightTalkRE.com.

~ Chuck