Came here with that exact question. Thanks for posting!

Good day to bump this thread!

Jay@AgsReward.com said:

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I am getting this very reasonable question a lot today as I always do in the run up or aftermath of a Fed meeting. The short answer is no, the Fed funds rate does not effect mortgage rates directly at all. Mortgage rates are actually set by Mortgage Backed Security (MBS) prices. MBS are bonds made out of mortgages issued by Fannie/Freddie (and others but the large majority is Fannie/Freddie) and bought by the world wide bond market. These bonds are traded 24/7 just like any other stock or bond and this movement is what gets passed through to set mortgage rates.

All bond prices including MBS, are influenced by overall interest rates that the fed funds rate certainly influence. But fed fund rate cut and/ or raise are usually anticipated by the bond market months in advance so any price influence it may have into mortgage rates have been priced in many days before the actual meeting. Now, if there is a surprise either way, then there can be some excitement for sure.

Here is an article that does a better job of explaining: No, the fed funds rate cut won't affect mortgage rates

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Looks like you're dumbing down the answer here. The fed rate does effect the mortgage rate, just not directly in a 1-for-1 manner. You think if the fed rate jumps to 6%, mortgages will stay the same 3-4%? The simple answer is of course no they won't.

The MBS doesn't set their rates in a vacuum. Their inputs are, at least, the fundamentals of the market and what the fed rate currently is. Your comment even brings up that the fed is telegraphing their future moves and then the bond market is using that to set their rates.

And your final words also belie that there is influence from the fed into the mortgage rates, "Now, if there is a surprise either way, then there can be some excitement for sure." I don't see how the markets a few months ago have coronavirus slowdown baked into their prices. So by your own words - we should see a rate drop.

I know you're dealing with a bunch of clients who want to refinance and are hounding you with these questions, but the best answer isn't telling them the mortgate rates aren't effected by the fed and then describing exactly how the fed influences the rates. Just state what the fed is - it is the prime mover that sets the foundational rate that the rest of lending is based off of. Its not a 1-for-1 uptick or drop, but it is a majority of sway.

Bonds went up slightly

Now they are down a click DOW was up now down as well.

to one MEEN Ag


That is what Jay said. He said the rates are influenced by the fed funds rate, in the second paragraph.....

Of course they influence the rate, like I said in the post from August and the linked article points out. And yes, It is is a bit simplistic because people just want to know how it effects them, not an explanation of the entire interest rate complex. The questions I and all other mortgage originators get is when the fed cuts rates , does the mean mortgage rates will go down? and the answer is of course, maybe but not necessarily. and the fed does not directly control mortgage rates as consumer not as plugged as you often think.

The Fed Fund Rate is the rate the Fed pays bank fo keep funds overnight. Meaning it is the shortest term rate published. A surprise cut or increase can cause fluctuations in the other rates but is usually an emotional reaction to the surprise and is short lived. A steady or anticipated move in the Fed Funds rate has little impact on the other rates, but does signal a possible direction or trend the other rates may anticipate. That being said the Fed Fund rate is the shortest term rates out there and as such as very little affect on the 30 yr or even the 10 yr Treasury rate. The 10 year Treasury Rate most models the direction of mortgage rates. A jump up or down on the 10 yr treasury will usually have an effect on the 30 yr and 15 yr mortgage rate.

A month ago the 10 yr Treasury yields was 1.65%, today it is 1.05% and we did see a drop in the 10yr after the surprise Fed Fund Rate cut. I would think you will see a downward trend in mortgage rate at least in the short term. Be mindful that it is not a one for one comparison but only a trend indicator.

Rates appeared to increase pretty significantly today

For those in the know, what are the jumbos doing?

Rates Trending down.

https://finance.yahoo.com/news/mortgage-rates-even-lower-120710614.html

Once again on the Fed rate cut: http://www.mortgagenewsdaily.com/consumer_rates/938844.aspx

So what should I expect in the following situation:

Expecting to do a Cash Out Refi to get funding for a home remodel in the very near future.

We are in the loan application process right now, but should I jump on today's rates? Or are the rates expected to go down a little? My wife and I both have excellent credit scores above 795.

At this point wait and ride it out for a few weeks and let supply catch up.