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I'm not really sure how this works. Say Bernanke cuts the rate by .25. Does that mean the avg. mortgage rate will drop by .25 also? In other words, do lenders typically pass on 100% of the rate cut to the borrower?
I'm not really sure how this works. Say Bernanke cuts the rate by .25. Does that mean the avg. mortgage rate will drop by .25 also? In other words, do lenders typically pass on 100% of the rate cut to the borrower?
At this time all bets are off and nothing goes according to the historical logic and fundamentals. There are many analysts out there who honestly say their guesses are as good as mine and yours... I personally think the mortgage rates probably will go down, but not as much. They traditionally move along with the yield on the 10-year Treasury note, but now the mortgage rates go down by a lot less. There was an explanation on bankrate's site. The economists call it 'spread' and this spread is bigger when the risk is perceived to be higher.
A .25 percent cut might not affect mortgage rates downward at all.
There are traditional relations between the 10 year yield curve and the 30 year fixed rate mortgages...but...
It is all a supply & demand PLUS yield spread issue now. You can throw out traditional indicators.
It is unlikely that any fed funds rate reduction will bring back subprime mortgages to any effective level.
I doubt Jumbo or Alt-A mortgage rates will fall much.
The most likely impact of a fed funds rate cut to mortgages will be in the conforming loans area. These are fully documented income loans less than 417,000 in loan amount with 5% or more down payment.
All bets are off for any other loan product...I would not be surprised to see mortgage rates rise even after a fed funds cut.
the PRIME RATE may fall as it is tied to the fed funds rate. BUT Prime rate is tied to 2nd mortgages, student loans, credit cards, etc.
if you want to know if the rates dropped in a day....look at the stock market.
if the market dropped...like it did today...then the rates will drop.
if the market does very well then the rates will go up.
mortgages are tied to the 10yr bonds....
if the market is doing good...nobody will buy bonds..and put their money in the market.
if the market is doing bad or it crashes like in 09/11...then everyone will buy bonds.
i'm a mortgage broker..and i always look at the 10yr bond rates around 11am...to see if the rates are going to drop or go up.
the PRIME RATE may fall as it is tied to the fed funds rate. BUT Prime rate is tied to 2nd mortgages, student loans, credit cards, etc.
if you want to know if the rates dropped in a day....look at the stock market.
if the market dropped...like it did today...then the rates will drop.
if the market does very well then the rates will go up.
mortgages are tied to the 10yr bonds....
if the market is doing good...nobody will buy bonds..and put their money in the market.
if the market is doing bad or it crashes like in 09/11...then everyone will buy bonds.
i'm a mortgage broker..and i always look at the 10yr bond rates around 11am...to see if the rates are going to drop or go up.
Exactly how I remember it from my days as a mtg broker.
Prime rate really does not effect mortgage rates much at all. The main reason the fed raises or lowers the prime rate is to tame inflation. If they cut too soon and inflation gets out of control all the foreign currency flowing into the U.S. will stop (hence buying less U.S. mortgaged backed bonds) pushing rates higher.
i'm a mortgage broker..and i always look at the 10yr bond rates around 11am...to see if the rates are going to drop or go up.
You're generally right, of course, but lately that's not quite the case. Even if mortgage rates drop, it's not nearly by as much as they used to in the past.
There is a school of thought that says if we cut rates while other countries are raising rates that will send more money overseas and only exacerbate the liquidity crisis.
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