One of my clients reached out to me today to ask if his mortgage rate would drop when the Federal Reserve lowered the rate. Homebuyers sometimes misunderstand how the Federal Reserve affects traditional mortgage rates. The Fed doesn’t actually set mortgage rates. Instead, it determines the federal funds rate, which generally impacts short-term and variable (adjustable) interest rates. This is the rate at which banks and other financial institutions lend money to each other overnight to meet reserve levels. When the federal funds rate increases, its more expensive for banks to borrow from other banks. Those higher costs may be passed on to consumers in the form of higher interest rates on lines of credit, auto loans and to some extent mortgages. Traditional mortgage rates are impacted by a number of factors, including Federal Reserve monetary policy, which includes both the federal funds rate and buying and selling of government securities such as bonds.
Jennifer specializes in home mortgages, construction loans, and lot loans at South Story Bank and Trust.