Posts Tagged ‘Interest Rates’
Fed Funds Rates vs. Mortgage Rates
The Federal Reserve recently announced that it intended to keep “interest rates” low through at least mid-2013. This unprecedented statement shocked the markets and helped drive mortgage rates down to match historic lows. As investors digested this information, many concluded the Fed is essentially stating that they believe our economic growth will remain stagnant for some time.
Although the markets appreciated the transparency of the Fed’s statement and assurance that lending rates will remain low, it was a sharp contrast to prior predictions that our economy would be at a healthy growth rate by the end of 2011. The acknowledgement that our economic recovery has been “significantly slower” in the first half of 2011 than previously expected was more in line with what many on “Main Street” have been saying all along.
How Will this Decision Impact Mortgage Rates?
There are two interest rates that are controlled by the Federal Reserve – the Fed Funds Rate (a lending rate at which banks with deposits at the Federal Reserve lend money to other banks overnight) and the Discount Rate (the interest rate that an eligible depository institution is charged to borrow short-term funds directly from a Federal Reserve Bank). Both of these are very different from mortgage rates. A mortgage rate can be in effect for 30 years while a rate set by the Fed can change from one day to another. Therefore, this recent statement by the Fed does not guarantee that mortgage rates will stay in current ranges until mid-2013, only that it is likely short term rates will remain at current levels for the next two years (home equity rates, car loan rates, credit card rates, etc.).
A “Perfect Storm” for Home Buyers
With low interest rates, tax credits offered by the Federal Government, and lower home prices, a “Perfect Storm” has created a favorable time to purchase a home. With two out of three of these incentives ending soon, time may be running out.
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Ever Wonder…
How Interest Rates Work?
If you’ve ever wondered how interest rates work, take just a few minutes and watch this great video. It’s a very simplified version of how interest rates move UP and DOWN in this very volitale market. You’ll get a small taste of what we monitor each and every day. Enjoy the video!


