Take a trip to the E-Loan website and you’ll be greeted by a graphic of the US Capital building announcing that the “Fed Cuts Rates,” to 1.00% down 1.2 a point. That’s truly amazing…but what does that have to do with mortgage rates?
Absolutely nothing. The rate cut that took place on 10/29/2008 was to the Federal Funds Rate. This is the interest rate the government charges banks when they borrow money, it has absolutely nothing to do with mortgage rates. E-loan claims you can lock in a historically low interest rate because of this historic rate cut and this simply isn’t the truth.
Mortgage Rates Follow The Bond Market…Not The Fed
Long term interest rates like 30 year mortgage rates are affected by yields (return on investment) in the bond markets. Mortgage rates tend to rise and fall based on the yields of long term investments like the 10 year bond.
As a mortgage shopper if you want to know which direction mortgage rates are headed, pay no attention to when the Fed cuts interest rates. Watch what the bond market is doing, particularly the yield on the 10 year bond. When this yield drops it is a good indication that 30 year mortgage rates will also drop.
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