If the Fed drops the int. rate, how soon before the consumers reap the rewards in re. to a Mortgage?

Answer 1

they may not reap any reward even if the Fed lowers the fed funds rate.

Fixed rate mortgages are usually priced off the 10 year Treasury bond rate plus enough to entice buyers.

Variable rate mortgages usually reprice off one year Treasury obligations -- and the spread over that is fixed when the loan is made.

Is is quite possible for short term rates [fed funds means overnight loans between major banks] to go down while long term rates go UP. Thus, the fed funds rate could well fall to 4 percent or lower but the 10 year Treasury bond rate might increase to 6.25.

AND, the spread over the government's cost of money required to entice someone to buy your mortgage loan might well increase. Spreads were quite low in the fourth quarter of 2006 and have been going up in the past few months quite dramatically.

SO, the cost for a new mortgage, or a re-fi, might well go UP, not down.


The ARM loan you already have probably reprices one a year. Thus, the new rate would be determined whenever that occurs for your particular loan.


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