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What Are Mortgage Rates Based On
Mortgage rates are based on several things. Homeowners often become very interested in the Federal Reserve Bank system thinking that they have a direct impact on mortgage rates. This is not entirely true. Nevertheless, every time the board of directors meets, mortgage interest rates are at risk.
The primary job of the Federal Reserve is to manipulate fiscal policy. The goal is to fine-tune the economy to create a stable, predictable situation in which businesses can function. Wildly fluctuating economic keys, such as interest rates, can lead to chaos. In the late 1970’s, for instance, interest rates shot up into the high teens, causing a major economic slow down.
The Federal Reserve effectively controls mortgage interest rates in a unique manner. Many people mistakenly believe interest rates are actually set by the Federal Reserve. They clearly are not. Instead, the Federal Reserve directly dictates the rates at which one bank can loan money to another. Let’s take a closer look.
The Federal Reserve determines the federal funds rate. Every bank in the United States is forced to maintain a savings account. While this money cannot be loaned to consumers, it can be loaned to other banks. In exchange for the loan, a bank agrees to pay back the loan at an interest rate known as the federal funds rate.
So are mortgage rates based on the federal funds rate? While there is no direct link, there is a practical one. Banks universally react to the federal funds rate, particularly whether it was raised or lowered. If the federal funds rate is raised a quarter point, you can expect mortgage rates to move up a bit. The bond market also impacts mortgage rates, which is why you will not see the exact same movement as occurs with the federal funds rate.
What are mortgage rates based on? They are not neccesarily based on but affected by the federal funds rate. The Federal Reserve System makes a major effort to maintain a low profile. Most people, however, feel it is the real power behind the economy, not politicians. PR