Do you know about - Who Sets Interest Rates?
Federal Reserve Interest Rates! Again, for I know. Ready to share new things that are useful. You and your friends.Over the past few months I have had both current clients and potential clients calling and request why haven't the interest rates dropped more. "The Fed Funds Rate is undoubtedly low." "How long will it take for mortgage rates to go down also?" "I'm going to wait a minute longer, I know they will drop because of the Fed Funds Rate."
What I said. It is not outcome that the true about Federal Reserve Interest Rates. You read this article for info on that want to know is Federal Reserve Interest Rates.How is Who Sets Interest Rates?
Unfortunately, many borrowers and even some loan officers get confused when is comes down to who undoubtedly sets the mortgage interest rates. First of all, the Fed Funds Rate has undoubtedly nothing to do with where mortgage interest rates are. The Fed Funds Rate is undoubtedly the interest rate that banks lend to each other overnight. The lower the rate, the more liquidity there is between the banks. It is a short term rate that signals the Federal Reserves view as the state to the money supply.
Well. If the Federal retain doesn't set rates, who does? I'm sure many of you reading this have seen the videos from the Chicago Board of Trade with all the members running colse to in their dissimilar colored coats, flashing hand signals, shouting buy or sell at the top of their lungs. It is there at the Cbt, where other commodities are traded, are where the preliminary rates are set. Most long term mortgage rates are related to the 10 Year Treasury Notes traded on the exchange. Why the 10 year Notes? generally because they are considered one of the safest bond instruments in the world. When the 10 Year Note goes up in price and the yield goes down, over the course of the next few days. The lower price will be reflected in the conforming mortgage rates.
But with the higher priced homes in California, where most are above the conforming loan limit, we move into the jumbo loan range above 7,000. Since the stimulus holder things have changed for the jumbo market. Now that Fannie Mae and Freddie Mac are involved, we now have what are known as department Jumbos. These are jumbos that range between 7,001 and 2,500 here in Sonoma County, and are priced by Fannie and Freddie themselves. Up until the end of April however, the inequity between the conforming rate and department jumbo rates was still wide. It was nearly 1/2 point to 3/4 points. But in late April, both Fannie and Freddie narrowed that gap down to 1/4 to 3/8 points difference. Loans above the 2,500 mark are still considered jumbo loans and are priced by the lenders themselves at a much higher rate than the department jumbos to attract investors to buy them. Compared to department jumbos, the accepted jumbos are priced somewhere colse to 7.625% to 8 1/2 %. Why so high? Because investors are skittish about the higher loan amounts and want incentive to buy them.
There you have it. A very simplified explanation of who sets interest rates. So the next time someone says that the fed funds rate was lowered hwy hasn't the interest rates gone down. You can pass it along.
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