Local mortgage broker explains interest rates
Mortgage rates have gone down in the last few weeks
– I get a lot of calls from people that are confused when they hear this on the news: “The Fed is raising rates.” What does that statement actually mean?
The rate they are raising is the federal funds rate. The federal funds rate is the interest rate that large banks charge each other to borrow funds overnight to meet their liquidity requirements.
This does have a pull-through to the cost of credit in the rest of the economy. This pull-through is not necessarily immediate, but the goal is to increase the cost of credit overall.
Mortgage rates are directly affected by the yields paid on mortgage-backed securities. These are asset-backed securities, made up of a collection of mortgage loans. When demand for these securities drops, the yield (return) they pay, must rise to attract investors. This yield is created by interest, so rates rise.
I wanted to clarify those things because while the Federal Reserve has continued to raise the federal funds rate, mortgage rates have gone down in the last few weeks.
The bump in mortgage rates off all-time lows has sidelined a lot of buyers. However, the recent high peak was on June 23rd.
A lot of recent home shoppers would likely be surprised by the fact that rates have come down nearly a full percentage point, which makes a huge difference in monthly payments.
I know that the recent housing and interest inflation has left a lot of people discouraged. I hear this from folks every day. My intent here is to say that things have gotten better recently.
Sellers are becoming more accommodating, which may allow a buyer some flexibility to use strategies that to make things more affordable. The extreme competitive environment that left so many people disheartened has eased a lot.
Basically, if your dream is to buy a home on the central coast, don’t give up. Prepare, plan, and strategize. Things are looking up.
Central Coast Lending
NMLS #. It is 343314