Cecil County Connection

I had received a comment in yesterdays post about the fed cut and mortgage rates. The question was if fed cuts don’t affect mortgage rates than what does? I was unsure on this one so I turned to the expert.

Darren Corder from Chase  had this reply for me.

“With the Fed cutting the Fed Fund Rate by .75 pt, there will be a little bounce
up and down in long term interest rates.  For those of who have read my messages in the past on this subject, this will be a refresher.  For those that are new to my info, I hope this will help you when you are talking to your customers.

The Fed Fund Rate is the rate that banks charge each other on overnightlending.  When the Fed rate gets changed up or down, it has an immediate effect on loan product like car loans, credit cards, short term personal bank loans, and home equity loans, as well as savings account interest. What it does NOT do, is have a direct effect on long term lending like mortgage rates.  They are not connected. The true mover of mortgage interest rates on a day to basis is the “see-saw” effect between “Mortgage Backed Security” bonds, and the stockmarket.  When the stock market goes up, bonds typically go down.  When this happens, mortgage rates rise.  If the stock market drops, usually mortgage rates drop.

So, put simply:  Stock market up, mortgage rate up, Stock market down,
mortgage rate down.

How will today’s Fed cut affect rates?  Depends………if the stock market
rises because investors are happy about the cut, then rates will probably
get worse, and vice versa.

Watch the Dow on wall street.  If its going up, prepare your customer for
rising rate quotes, if its dropping, then the opposite.”

Darren also said that if anyone had any questions on this subject they could contact him.

Thank you Darren for this information on the Fed Cut and a very quick reply!

 

Filed under: Mortgage info on March 19th, 2008