Fixed-rate mortgages do not move in tandem with changes in the federal funds rate. Sometimes, mortgage rates rise following a Federal Reserve rate cut. Other times, they fall.
How soon could it affect you? |
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Orawin Velz, senior
director at the Mortgage Bankers Association,
predicts rates will remain "relatively
flat" for the next few months before
moving moderately higher as the economy
gains strength in the second half
of the year.
"For the second half of the year, we are expecting the economy to pick up quite a bit," she says. "I would say with the economy getting stronger, we would probably see some moderate increases in mortgage rates."
“For the second half of the year, we are expecting the economy to pick up quite a bit.”
However, it's impossible to know for sure how soon the latest Fed rate cut will affect fixed-rate mortgages, if it influences them at all.
Meanwhile, adjustable-rate
mortgages, or ARMs, may go lower.
The federal funds rate is closely
correlated with the London Interbank
Offered Rate, also known as LIBOR.
Many ARMs are pegged
to the six-month LIBOR rate, which
usually moves in the same direction
as the federal funds rate.
But as with fixed rates, it's impossible to say conclusively when -- or even if -- adjustable rates will fall in the wake of the Fed's latest rate cut.
Conclusion
The Federal Reserve's decision to cut the federal funds rate does not have a direct impact on fixed-rate mortgages. For her part, Velz predicts mortgage rates will not go too much higher this year.
"It's going to be a slow-growth year, so we're not looking for a big pickup in rates at all," she says.
Still, it's impossible to know when -- or even if -- mortgages rates will rise or fall as a result of the Fed's latest rate cut.
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Fed announcement: Sept. 16, 2008
