RECENT FED RATE CHANGE AFFECTS LONG TERM MORTGAGE RATES

MY DURANGO REAL ESTATE CLIENTS ARE INTERESTED IN HOW THE RECENT FED RATE CHANGE AFFECTS LONG TERM MORTGAGE RATES...

A CHANGE IN THE FED RATE AFFECTS SHORTER TERM BUSINESS LOANS AND MORTGAGES ON COMMERCIAL PROPERTY, AS BANKS CHANGE THE RATES THEY CHARGE THEIR BUSINESS AND COMMERCIAL CLIENTS. TYPICALLY, WHEN THE FEDERAL RESERVE CHANGES THE FED RATE, THE LOCAL BANKS CHANGE THEIR PRIME RATE, AND OTHER RATES FOR CORPORATE AND BUSINESS CLIENTS.

IT DOES NOT DIRECTLY IMPACT THE SECONDARY MARKET MORTGAGE RATES, WHICH ARE THE RATES THAT MOST OF US PAY FOR OUR RESDENTIAL HOME MORTGAGES.

THE SECONDARY MARKET RATE IS THE INTEREST RATE DETERMINED BY THE MARKET, AND MOVEMENTS IN THE MORTGAGE RATE REFLECTS SUPPLY AND DEMAND CONDITIONS IN THE MARKET FOR MORTGAGE BASED SECURITIES. THESE INTEREST RATES TEND TO FOLLOW MOVEMENTS IN OTHER LONG TERM INTEREST RATES, SUCH AS THE 10 YEAR TREASURY BOND RATE.

GENERALLY SPEAKING, WE SOMETIMES SEE FLUCTUATIONS IN THE FED RATE WHICH DO NOT IMMEDIATELY IMPACT THE LONG TERM MORTGAGE RATES, BUT WHEN YOU LOOK AT THE CORRELATION BETWEEN THE RATES OVER A LONGER SPAN OF TIME, THEY BOTH TEND TO MOVE UP OR DOWN TOGETHER. THE LONG TERM INTEREST RATES ARE USUALLY HIGHER THAN SHORT TERM INTEREST RATES, DUE TO THE RISK OF LONGER TERM MORTGAGES.