Everyone is keeping an eye on the Feds today. Rumor has it another half-point rate cut is in the works, which would bring the federal funding rate down to 1.000%. The federal funding rate hasn’t been this low since June 2003. What will all of this mean for interest rates? Well, it isn’t good news.
Taking a break from ruling Middle Earth, Sauron has his eye on the Feds.
Interest rates have climed recently due to other factors that include:
- The credit crisis has forced investment funds to sell off their mortgage backed security (MBS) bonds to raise capital. More bonds available in the market means their value decreases. As we know from previous posts, when bond prices sink, interest rates rise.
- MBS bonds, once a safe-haven from stocks, are now seen as a higher risk. Investors are moving into Treasury bonds and selling off MBS bonds. Not to sound repetitive, but more bonds in the market decreases their value and increases interest rates.
- The emergency cut to the federal funding rate just three weeks ago has also hurt interest rates. Since the rate cut, the MBS bond market is down almost 200 points and interest rates moved from 5.5% to 6.25%.
Needless to say, another half-point cut today (which is a very strong possibility) will not be the best news for interest rates. As the federal funding rate decreases, mortgage rates increase. Considering all of these variables, things are not looking great for interest rates.
That said the initial reaction could be interesting. MBS bonds have endured a beating over the past few days and stocks enjoyed their second best day EVER on Tuesday. Because of those events, the initial reaction to the cut could have the opposite affect. While today may be a descent day for interest rates, the next week or two does not look as promising.
Anyone sitting on the fence for a refinance OR hoping for rates to improve before locking in on a purchase should consider locking their rate sooner rather than later.
Clay Jeffreys is a Mortgage Consultant with Hillside Lending, LLC and writer for “Blog Pertaining to the Acquisition of a Mortgage to Purchase a Domicile.” Hillside Lending seeks to provide mortgage brokerage services with the highest standards of service, care, honesty, integrity and value; concentrating on owner-occupied, residential financing. For more information about available programs and interest rates, please visit www.hillsidelending.com.
