Fed Rate vs Mortgage Rate

Why current Fed news has little impact on mortgage rates

There's a little secret that only savvy investors and people directly involved in the mortgage industry tend to know:  when the Fed announces an increase or lowering of interest rates, it has almost no impact on mortgage rates.  Here's the primary reason why.   While it's true the Fed only controls the federal funds rate - the rate at which banks lend each other money in the overnight markets, not mortgage rates - the real reason is behavioral.  

Mortgage rates are set as a result of what people trading mortgage backed securities are willing to pay as of the day they trade.  The price traders are willing to pay for mortgages are based in large part on predictions of where interest rates are going in the future and as a result, already include whatever expected Fed activity is going to occur in the near term.  Unless the Fed does something unexpected at their meetings, or gives a press conference with surprising direction on what they intend to do in the future, the market has already "baked in" the Fed's predicted rate decision.  So by the time the Fed meets and shares its guidance, the mortgage market has already fully priced any anticipated increase in the Federal funds rate.   What this means for you is that by the time you hear the Fed has increased or lowered the Federal funds rate, it's old news for mortgage rates and they won't respond with much enthusiasm.  If you can get a rate you like, lock it in and avoid timing the market - even "experts" are guessing about the direction of interest rates!

Want to know how to reduce your mortgage payments?  Contact us today at matchmaking@castlehillmortgage.com or (925) 204-2029 to see how we can match you up with the perfect mortgage.