Have you called your mortgage professional to see what kind of great mortgage interest rate you can get with all the recent Fed rate cuts? Many homeowners have done just that to find that mortgage rates have not dropped the way they think they should have!
When the Fed drops the Fed Funds Rate, which is the rate that banks loan money to each other overnight, the prime rate goes down but mortgage interest rates usually go in the opposite direction. The main reason the Fed lowers this rate is to stimulate the economy, because when the prime rate goes down, so does the rate that businesses pay to finance capital improvements and other types of spending.
Mortgage interest rates are based on the price of mortgage bonds, also called mortgage backed securities. The higher the price of mortgage bonds, the lower the interest rate on your home loan becomes. When the business environment is stimulated by the Fed dropping the Fed Funds Rate, the price of stocks can easily go up. When the traders on Wall Street are investing your money and they put more money into stocks, the price of bonds drops. When the price of mortgage bonds drops, mortgage interest rates go up, and that is why your mortgage interest rate may not be any better than it was before the recent reductions by the Fed.
With the adjustments the economy is making this year, mortgage bond pricing has been very volatile. Interest rates have varied quite a bit, so be sure if you’re shopping for a new mortgage, that you lock your rate at the right time!