Fed Rate vs Mortgage Rates……what gives?

March 23, 2020

Posted by in News

Ah yes! This has been a popular topic since the Federal Reserve’s emergency rate cut to a range of 0% to .25%.


Coming off March 9 mortgage rates that were at historic lows to—not even four days later—being about a full percentage point higher, the Fed again cut the rates on March 15. This is what’s going to send mortgage rates to guaranteed rock bottom lows, right?


In the words of famed football coach and broadcaster Lee Corso, “Not so fast my friend!”


The Fed Funds Rate deals more directly with short-term rate items like credit cards, savings rates and bank-to-bank short-term loans. You may see a credit card APR go down (YES!), but generally, the Fed rate is not a consumer lending rate.


Although the mortgage rates have a tendency to mirror the direction of the Fed Funds Rate, it is never a direct correlation.  Remember, the Fed Funds Rate is for short-term rates and mortgages are not short-term.


So, what IS going to happen? 


Great question. With the Fed also announcing that they would be buying mortgage-backed securities as part of the quantitative easing, or QE, this should assist in the correlation between mortgage rates and the 10-year treasury.


You must understand one thing – this is NOT something that happens quickly. Supply of these mortgage backed securities have to be in demand, and right now they are not.  As you see with the volatility of the market, people are selling and trying to get liquid. They are getting out of long-term positions, which includes the mortgage backed securities.  That is why mortgages rates have gone up so much since that amazing March 9 date.


What will it take for mortgage rates to come back down?


Another great question and that can be answered in one word – stability.  The market has to become more stable and the current fire-sale sell-offs need to stop.  Consumers have to be comfortable getting back into long-term positions. Once consumers are confident, the market should stabilize, and long-term positions will be in demand.


Until then, do your due diligence.  Rates change daily and recently they have changed multiple times a day. Reach out to a mortgage loan officer and ask us what can be done now as opposed to waiting until it is too late.


Chris Austin is a Mortgage Loan Originator with Jet Home Loans. Based in Jacksonville, he has worked in the home loan business for 11 years. Questions? Contact Chris today at (904) 881-4690 or chris.austin@jethl.com.

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