Mortgage Rates increased?

Question

The fed lowered rates .25% last time. Why did a 30 year mortgage increase from 5.61% to 5.79%?

Okay, I hear some of you, but in some of your reasonings, the rate should have stayed the same. But they instead increased .19% on FIXED mortgages.

Why?

Okay. They aren't directly related. THEN WHY DID THEY INCREASE?

Answer 1

Mortgage rates and the Fed rate ARE NOT DIRECTLY RELATED...

The discount rate is the interest rate the Federal Reserve Banks charge depository institutions on overnight loans. It is an administered rate, set by the Federal Reserve Banks, rather than a market rate of interest. The primary conventional mortgage rate is a market-determined interest rate for long-term residential mortgage loans. A change in the short-term discount rate does not affect interest rates on long-term mortgages.

Historically, mortgage rates have followed the 10 Year Treasury.

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Reply To Additional Details:

I cannot point to one, two, or three items and say “this is way rates increased X % today” – however, what I can tell you is this – mortgage interest rates rise and fall based on what happens in the bond market, and the bond market (like the stock market) rises and falls as a result of economic data, world events, investor emotion (fear/greed), and yes, even the media over-hyping the news – take your pick.

Additionally, every time the Fed releases various economic reports it affects bond movements. Foreign markets also can affect the bond market which in return will affect mortgage interest rates. For example, when the European Central Bank raised their version of the discount rate, many investors sold off their bonds looking for a higher rate of return in their investment – affecting mortgage rates.

Maybe there is a simple answer to why rates jumped up 19 bps today (eg, some news event I missed perhaps), but then again there might not be a logical answer - remember in my original reply I said mortgage rates are a market driven rate - and the market does not always make decisions based on sound logic - often it's based on emotion.

Answer 2

The rate increase means monthly payments on new mortgages will jump. Five weeks ago, a buyer with a 30-year loan would have committed to payments of $487 a month. Now it's $526. That's an 8% price difference more than enough to give most shoppers pause

Answer 3

Unless you have a fixed-rate mortgage, the current mortgage interest rates are very important to deciding how much you should pay every monthcompanies offer different interest rates so it is a good idea to shop around for the best deal before settling on one particular lender.

Answer 4

Because lenders have turned risk-adverse and now want more premium for the risk of lending. There is no law that says mortgage rates directly track the Fed funds rates.

Answer 5

Mortgage rates are only related to Fed rates in terms of confidence brought to the market or taken from it.

Mortgages are traded in the Bond mkt as Mortgage Backed Securities (MBS) and the retail rates to home buyers are a function of that trading. (risk layering adjusted)
http://loan.yahoo.com/m/cq_det.html

http://www.bankrate.com/brm/green/mtg/ba...

Answer 6

The federal funds rate is the rate banks charge themselves for interbank transactions. 30-year mortgages are usually pegged to 30-year T-Bills, an entirely different animal.

Answer 7

Mortgage rates aren't based upon the federal prime, but moreso on long term securities.

Answer 8

it sounds like you have a variable rate mortgage meaning it has changed.

When the feds change the "rates" its not the Prime rate that they change--it is the market rate.

So when your market rate is lowered, the bank still needs to be paid and will up the prime (the cost of doing business).

Sometimes you need to look into another way of paying your mortgage.

A way I've found is paying exactly EVERY 2 weeks and that helps keep the overall cost of interest down, that can counteract the difference of market to prime.

Hope that helps

Answer 9

No, when the Fed's adjust the interest rate, it is an adjustment to the short term rate(s) not mortgages.

Answer 10

rates are expected to go up again in January and by mid june. if your seeking lending and have good credit secure a rate now.