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The Fed has been cutting the Fed Funds rate , but recently mortgage rates have been going up. From some reading I believe this is the banks' action for expected inflation. However, my question is whether this is the same reason why current mortgage rates are increasing? Shouldn't variable rates be dropping with the Fed's cuts?
The Fed has been cutting the Fed Funds rate , but recently mortgage rates have been going up. From some reading I believe this is the banks' action for expected inflation. However, my question is whether this is the same reason why current mortgage rates are increasing? Shouldn't variable rates be dropping with the Fed's cuts?
Yes, I found it confusing, too. They did have a news report before this last drop in interest rates. In that story, they said it would help certain buyers, but harm others because their rates would actually be higher. They went on to say that this would not be good and would raise several things including gas prices. I wish I could remember the specifics, but all I can say is that the drop in interest rates won't have as positive of an outcome as many people had hoped for.
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Originally Posted by Shikaka805
The Fed has been cutting the Fed Funds rate , but recently mortgage rates have been going up. From some reading I believe this is the banks' action for expected inflation. However, my question is whether this is the same reason why current mortgage rates are increasing? Shouldn't variable rates be dropping with the Fed's cuts?
Mortgage rates were increasing because the liquidity backing the securities is not there. Fixed conventional mortgage rates are tied to FNMA bonds. Most variable rate mortgages are tied to the LIBOR index, which has been trending steadily upward for the last month or so. However, the rates seem to have steadied or even dropped a bit in the last week. I would not consider mid to high 5% rates high. Historically, even 7% is rather low.
Mortgage rates are not tied to the Fed funds rate, the Fed discount rate, or the Prime rate, with the exception of HELOC's, which are tied to Prime rate.
Mortgage rates were increasing because the liquidity backing the securities is not there. Fixed conventional mortgage rates are tied to FNMA bonds. Most variable rate mortgages are tied to the LIBOR index, which has been trending steadily upward for the last month or so. However, the rates seem to have steadied or even dropped a bit in the last week. I would not consider mid to high 5% rates high. Historically, even 7% is rather low.
Mortgage rates are not tied to the Fed funds rate, the Fed discount rate, or the Prime rate, with the exception of HELOC's, which are tied to Prime rate.
Very nicely put. In the last week we've seen conforming fixed rates drop and ARMS spike. Jumbo fixed rates are relatively atrocious at the moment, and Con-Jumbo rates are going to fill the gap somewhat but only for very well qualified borrowers (700+ FICO) and won't be available on co-ops.
That said, there are still portfolio lenders whose rates are damn good, pretty much same as they were before the recent spike in rates because their products are intended to be held anyway.
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