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Do Mortgage Interest Rates Really Go Down When the Fed Lowers Interest Rate?

Usually, when the Federal Reserve Bank announces that it’s going to lower interest rates in order to stimulate the economy, it’s assumed that mortgage interest rates will go down as well. That’s not always true. When the FED lowers the FED Funds rate, rates on home loans usually go in the opposite direction. Here’s why. The money affected by the FED lowering rates is money which banks lend or borrow for overnight or short term loans. When this happens, usually the stock market goes up because the big money managers take money out of bonds to put into stocks as the lower FED rate usually spurs the economy. The result of taking money out of bonds is mortgage rates suffer because mortgages are tied directly to Mortgage Backed Securities which are bonds. Check out the chart below for a comparison of FED rates vs. 30 year mortgage rates.

fed-vs-30-yr-rate.pdf


3 thoughts on “Do Mortgage Interest Rates Really Go Down When the Fed Lowers Interest Rate?

  1. There is still no final word on when or if the FHA limits will be raised. As soon as I know anything, I’ll let you know.

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