What interest rates do.
Interest rates change constantly, but it is important to know that rate trends are cyclical. If rates are currently at historical lows then we know there is a strong probability rates will go up again, and vice versa.
Shorter-term rates have increased dramatically in the past 2 and ½ years.Since June of 2004, the Federal Reserve Board has raised the discount rate 17 times. In early 2004 the rate stood at 1% and now it is 5.25%! The longer term rates, particularly 30 and 15 year fixed rates have gone up, but quite modestly in comparison. From the high 4 percent range at the low to the low 6 percent range now. So what that means to the consumer is that shorter-term rates have increased more than 400% while fixed rates have only increased 50%.
The table below indicate the current Mortgage Rates provided by Freddie Mac's Mortgage Market Survey. These rates are provided here as an example. Actual Rates are subject to change due to market fluctuations and borrower's eligibility.
Why interest rates do what they do
The Federal Reserve Board(FED) is tasked with holding the reins on the economy. It’s job is to keep economic growth moving along at a sustainable rate. They put the pedal on the gas by lowering the discount rate when the economy needs a boost and they increase the discount rate to slow things down. The Fed’s actions drive the short term interest rate market. The Fed’s actions don’t have a direct impact on mortgage rates, but do have a huge impact on bond market sentiment which does move mortgage rates.
Economic trends such as employment and job growth, costs of consumer goods, retail sales growth and contraction, and the confidence that consumers have in the future of the econony all can have profound effects on mortgage interest rates.
A key factor to watch is the relationship between stocks and bonds. When the economy is slow and the stock market "bearish," many investors move money out of stocks and into bonds and mortgage−backed securities. This can cause mortgage interest rates to go down. Conversely in a “bullish” market, stocks rally and investors pull their money out of the bond market and into the stock market. This would have the effect of pushing rates up because bonds need to have higher yields to attract those investors back.
So we have the FED stepping on the gas and then on the brake, we have bulls and bears buying and selling stocks and bonds feverishly to maximize their profits, and we have consumers putting off their big ticket purchases when they are not confident or buying cars like they are going out of style when they think everything is going great. It’s enough to make you crazy. How do you keep it all straight and what should you do?
Give us a call and let's talk. We are watching the markets every day as well as comparing different lenders rates and programs. Working with you and for you to provide the most suitable financing for your specific situation.
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