3-20-2008  Randy Grgich
 
Fed rate Cuts and Mortgage Rates
 
This Tuesday  the Federal Reserve cut interest rates by .75 of a percent.  The affect on 30 year fixed interest rates that same day? a rise of .25% on the rate! 
 
The Discount rate generally affects short term borrowing, So charge cards or home equity lines of credit that are tied to the prime rate, are generally going to follow along.  30 year fixed rates are tied to the 10 year bonds, and that index is more affected by the long term picture, and inflation risks.  The lowering of short term rates then may increase the risk of inflation, then the long bonds react negatively, and in turn affect the longer term mortgages.
 
Finally, long term mortgages are currently affected by the spread between the base 10 year Treasury bond and the mark-up or yield on the bond.  that mark-up, is usually about 1.75% to 2.25% over the base rate, but it is currently closer to 2.75%, thus the 15 and 30 year mortgages are about .25 to.50 higher than historically they would be because of this higher markup built in to the price of the mortgages.  
 
Randy Grgich is a local mortgage broker, working for Assured Mortgage Inc, he has over 22 years of experience in mortgage lending and also had 5 years of real estate sales prior to his lending career.  His views are independent of those of The Right Address .