WeeklyBasis 06/27/05: How The Fed Affects Your Rates

Rates/Commentary, for the week of June 27, 2005. Rates open down by almost .25% this week. Interesting that this happens right before the Fed’s .25% rate hike this Thursday from 3% to 3.25%. Here’s what’s going on: The Fed Funds Rate is what the nation’s Federal Reserve banks charge each other on overnight lending to balance out their reserves each day. This is not a rate we as consumers will ever get. So, you might wonder: Does the Fed movement impact longer-term rates? Well it should. The whole idea behind monetary policy is to set the tone for the rate markets. But that’s not what’s happening. Longer-term mortgage rates are tied to Treasury and mortgage bonds, and these securities are doing very well right now because they’re a safe investment when investors are uncertain about equities; or scared (like they are this week) about the impacts of high oil prices. Bond price and yield (or rate) move inverse of each other. So when bonds get bid up, their yields (or rates) drop — and mortgages follow suit. So we might see bond prices lag and rates increase if Thursday’s Fed Funds hike properly “sets the tone.” But otherwise the intermediate ARMs and Fixed loans should stay low. The only mortgages that will be directly affected by the Fed Funds change is Home Equity Lines of Credit. They will increase by .25% which will be reflected in most borrower’s July statements.

Conforming ($200,000 – $359,650) – NO POINTS
30 Year: 5.375% (5.515% APR)
15 Year: 5.0% (5.14% APR)
5/1 ARM: 5.125% (5.275% APR)

Jumbo ($359,651 – $650,000) – NO POINTS
30 Year: 5.75% (5.89% APR)
15 Year: 5.25% (5.39% APR)
5/1 ARM: 5.25% (5.40% APR)