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(updated 03/04/08)

Fed Rate Cuts Do Not Equal Lower Mortgage Rates

The following is an excerpt from an article by Barry Habid, Contributing Editor to CNBC.com

"So the Federal Reserve may cut rates again. Many mortgage applicants are calling and expecting a lower interest rate. Others who have been waiting to refinance are puzzled as to why rates have not moved lower when the Fed cuts rates. In fact, mortgage rates typically move in the opposite direction from the Fed move.

The Fed can only control the Discount Rate and the Fed Funds Rate.These are very different from mortgage rates. A mortgage rate can be in effect for 30-years, a rate that is set by the Fed can change from one day to another.

A look at some recent history shows that when the Fed cuts rates ... mortgage rates go up ... not down. In the late part of 1998, with mortgage rates around 6.5%, the Fed cut rates 3 times. Mortgage rates shot up by over 2% during the next year. Then in the spring of 2000 and after 6 Fed rate hikes, mortgage rates declined from 9.0% to 6.75% over the next 9 months. In 2001, the Fed cut rates 11 times. But mortgage rates were actually higher after the 11 Fed cuts.

Why do mortgage rates seem to defy logic and move contray to the Fed direction? Most often it is because Stocks and Bonds compete for the same investment dollar. So if stocks like the Fed decision to cut rates and rally, bonds typically worsen. If stocks react poorly to a Fed rate hike, bonds are usually the beneficiaries. As bond prices rise, interest rates fall. As bond prices fall, interest rates rise."

For a complete copy of this article, and the accompanying charts, please call me at 208-541-3170.

But the good news ... rates are STILL awesome and I would be happy to talk to you about whether a refinance makes sense. Call today and don't miss out!