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Old 10-16-2008, 08:38 AM
 
31 posts, read 122,634 times
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Can someone tell me why, when the fed is slashing interest rates, the banks are hiking up interest rates on mortgages. The other day when the cut was announced, HSBCs interest rate was 5.875 today it is 7% for a 30yr loan. That's higher than it's been in years! I realize we had one decent day in the stock market on Tuesday, but it tanked again yesterday. I also realize that banks will probably be trying to make it harder for people to get approved for mortgages, but that should have to do with how much someone is approved for...not the interest rates. Why are the banks the only ones to benefit from the rate cut? I don't get it.
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Old 10-16-2008, 08:41 AM
 
677 posts, read 2,229,348 times
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Here's an article that explains it broadly. Its old so some of the text might be a little out dated but the basics are there.

What the Federal Rate Cut Means for Homeowners - WSJ.com
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Old 10-16-2008, 08:50 AM
 
20,594 posts, read 19,257,030 times
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Quote:
Originally Posted by missyla View Post
Can someone tell me why, when the fed is slashing interest rates, the banks are hiking up interest rates on mortgages. The other day when the cut was announced, HSBCs interest rate was 5.875 today it is 7% for a 30yr loan. That's higher than it's been in years! I realize we had one decent day in the stock market on Tuesday, but it tanked again yesterday. I also realize that banks will probably be trying to make it harder for people to get approved for mortgages, but that should have to do with how much someone is approved for...not the interest rates. Why are the banks the only ones to benefit from the rate cut? I don't get it.
Hi missyla,

You don't need an article or an expert to explain. Short term rates tend to dictate money supply. When rates are low they increase money supply which tends to cause inflation. Long term lenders wish to have compensation for inflation risk thus rates go up.
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Old 10-16-2008, 09:19 AM
 
31 posts, read 122,634 times
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thank you for the feedback. that makes sense, even though it stinks Over the past few years, it seemed that a rate cut and interest rates on mortgages went hand in hand, but clearly that's not always the way. Thanks again for the info....learn something new everyday.
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Old 10-16-2008, 09:26 AM
 
Location: Backwoods of Maine
7,486 posts, read 10,447,090 times
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Mortgage rates are based on LIBOR - London Interbank Offered Rate, not the Fed rate. Right now the TED spread (difference between LIBOR and Fed rate) is jumping sky high! Bad sign!
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Old 10-16-2008, 09:27 AM
 
Location: The Pacific NW.
879 posts, read 1,958,062 times
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Longer-term mortgage rates are often tied to 10-year treasury rates, which have been going up the past month. And long-term treasury rates are indeed influenced quite a bit by inflation expectations, as alluded to.
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Old 10-16-2008, 11:02 AM
 
Location: WA
5,640 posts, read 24,883,426 times
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Simply... Money is moving to safe investments and mortgages are at the other extreme.
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