Oct 9 2017 19903 1

Oct 9 2017 19903 1

WHAT ARE MORTGAGE RATES BASED ON?

Mortgage rates are based onmortgage bondsormortgage-backed securities (MBS). MBS are the cause of mortgage rate change. The 10 year T-bill is also an indicator. But many bond market and financial reporters mistakenly tie mortgage rates to the performance of the 10-year T-Bill.

The Fed Lowered Rates -- Why Aren't Rates Going Down?

The Fed lowers the short-term discount rate to stimulate consumer spending on short-term credit, which affects credit card rates, some car loans and lines of credit.

The market can move faster than you may expect. When investors spot a short-term stimulus, they tend to bail out of the safe haven of bonds and/or mortgage backed securities and move those dollars into stocks. This typically causes a rally in the stock market and a sell-off of mortgage backed securities, both of which cause interest ratesto go up. Conversely, stock market scares will cause a move to safety in the safe haven of bonds and then interest rates will go down.

This is a global economy and many, many factors are at play. Thus it is very complicated trying to predict the rate direction.

The Realities of Fed Rate Cuts

If the Fed cuts the rates, rates go up, down, or stay the same. Fed rate cuts are used to   stimulate a slow moving economy, often resulting in an upward movement for interest rates. Oft times, the move has already been calculated into the market and it could stay the same and if the market remains sluggish rates can trend downward. The opposite is also used by raising the rates in an attempt to slow down inflation.


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Dated: October 9th 2017
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