Plunging Fed Rate & Mortgage Rates

Plunging Fed Rate & Mortgage Rates


Consumers have been keeping close tabs on federal interest rates, witnessing a three-point decline from 5.25% to 2.25% mortgage ratesin a six-month period. For people seeking to refinance their existing loans and for prospective homeowners needing a first mortgage, the lowered interest rates is good news.

However, unlike five to seven years ago when the federal rate dropped to a near historic low of 1%, mortgage interest rates are not likely to go much lower even if the Federal Reserve Bank decides to cut interest rates again. Other factors, namely a slowed economy, is impacting mortgage interest rates which means one thing: now may could be the best time for you to take action.

Mortgage Backed Securities

Another factor determining mortgage interest rates are mortgage backed securities, those funds which finance a large pool of mortgages today. Banks typically sell off home mortgages to secondary markets, but inflation fears and the credit crunch have kept mortgage rates from dropping. Investors are shying away from mortgage backed securities, preferring less-risky financing options.

Wait It Out?

Some financial analysts predict that a further easing of mortgage interest rates could occur this summer as the housing market begins to heat up again. A stronger housing and the easing of the current credit crunch can spur interest in mortgage backed securities, driving down rates across the board.

Further Reading

Dollar Gains on Speculation Fed’s Actions Will Revive Growth

Fed’s bold moves: Band-Aid or breakthrough?

The Fed’s Interest Rate Cut Doesn’t Mean Mortgage Rates Will Fall


Home Purchase Loans

Home Refinancing


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Categories: Home Financing

About Author

Matthew C. Keegan

Matt Keegan is a freelance writer and editor as well as publisher of "Matt's Musings", his personal blog. Matt covers campus, consumer, business and financial topics on various websites and blogs, and has been published in the "Houston Chronicle", "Sam's Club Magazine" and "Wisconsin Golfer".