Justin Perry's Mortgage Blog

Yes the Fed just cut interest rates.  No it did not affect mortgage rates....yet.

The Fed's decision to raise or lower interest rates does not directly affect mortgage rates.  What it does affect is inflation expectations of investors.  The Federal Reserve has a job description and it reads something like "control inflation so we have long-term economic growth and prosperity."  Simple enough.  If the US economy grows too fast, we will get inflation. If the economy shrinks, we just might have a recession. 

The Fed uses interest rates to manage growth in our economy.  Raising and lowering rates will change the rate banks charge each other for loans and also what the Fed charges banks for loans.  As it gets cheaper for banks to borrow money they typically reduce interest rates on everything from savings accounts to loans.  If a loan is tied to the prime index (like equity lines of credit) it will in most cases be the first to change. 

So when The Fed wants to speed up the economy it will lower interest rates, when it wants to slow the economy down it will raise interest rates.  This is done usually for inflation concerns. 

To sum it all up I take a quote from a financial web site I frequent:

"If investors think Fed rate changes will make the economy grow fast enough to cause inflation, the mortgage rates they demand will go up. If they think the Fed's actions will reduce inflation, mortgage rates are likely to fall. There are times when mortgage rates will go the opposite direction of Fed rate changes based on the inflationary impact investors expect."

Please contact me with any questions or concerns.  Remember that mortgage rates are at four year lows so call me if you or someone you know is thinking about refinancing.  Think rates will be lower tomorrow?  At First Call Mortgage we give you the best of both worlds.  If you lock today and rates go down before you close we will give you the lower interest rate.