Who sets the interest on it?
In recent months I have both customers and potential customers call and ask, why not have fallen, interest rates and much more. "The Fed funds rate is very low." "How long will it take before mortgage rates dropped, too?" "I will a bit longer to wait, I know it will fall as a result of the Fed funds rate."
Unfortunately, some borrowers and loan officers get a lot of confusion when it comes, that is actually the mortgage.First, the Fed funds rate has nothing to do with mortgage rates. The Fed funds rate is actually the rate that banks lend to each other during the night. The lower the percentage, the greater the liquidity between banks. This is a short-term rate, the Federal Reserve considers how the state of money supply signals.
Well, yes. When the Federal Reserve does not set rates, it does? I'm sure many of you reading this have seen the video of the ChicagoBoard of Trade to go around with all members in their layers of different colors, flashing hand signals, shouting to buy or on top of your lungs to sell. Since the CBT, where other goods are traded is quoted in which the original exchange rates are determined. Most mortgage market in the long-term Treasury bills exchanged for 10. Because the notes in 10 years? Especially if one of the safest securities instruments in the world. As the note is 10 yearsIt reduces the performance in coming days. the lower price segment, the mortgage will adjust in the role.
But with expensive houses in California, where most are above the limit corresponds to loans, we are going over the $ 417,000 jumbo loan. Since the economic stimulus package, things changed for the jumbo market. Now that Fannie Mae and Freddie Mac are concerned, we have what is known as an agency jumbo. These are the jumbo ranging between$ 417,001 and $ 662,500 here in Sonoma County, and are used by Fannie and Freddie own prices. By the end of April, but the difference between the set and in accordance with agency jumbo rates are still good. It is almost 1 / 2 point 3 / 4 points. But at the end of April, both Fannie and Freddie narrowed the gap to 1 / 4 to 3 / 8 point difference. Borrowed $ 662,500 mark or jumbo loans and are considered by these banks at a rate much higher than the agency jumbo ratesIncentives for investors to acquire them. Compared with the agency jumbo, jumbo jets are the standard set somewhere around 7.625% 8 1 / 2%. Why so high? Since investors are averse to higher loan amounts and incentive to buy them.
You're done. A very simplified explanation, the rates of interest. So the next time someone says the Fed funds rate was lowered interest hwy not decreased. You can specify.