Question : Why are home interest rates rising when the fed keeps lowering the interest rate?
I am a bit confused at why the interest rate on 15 and 30 year mortgages is rising and the Fed is lowering the interest rate. Shouldn't the mortgage companies be passing the savings on to the consumers? Isn't that the whole point behind the Fed trying to help our economy? Just wondering. If anyone knows the answer please let me know. Thanks.
- asked by weezy
All Answers:
Answer #1
Greed. Plain old simple greed. The mortgagecompanies are bleeding cash on the foreclosuresthey have to keep making so they are missing allkinds of projected earnings benchmarks. Sincethey have to get that money somewhere, banks arepretty much keeping their rates high to recoupsome of their losses.The Fed is lowering the ratesat which banks lend money to EACH OTHER. Thelenders in turn are screwing us.
- answered by DannoREA
Answer #2
Unfortunately for us home buyers, the rate thefeds keep dropping (and there's a good chance itwill happen again) is not related to long termloans. Its only the shorter terms - credit cardinterest rates, etc.With the stock market doingwell and inflation on the rise, it will push upthe mortgage rates.
- answered by irishkittie79
Answer #3
The correct answer is RISK and CAPITALAVAILABILITY. Large banks and investors are notwilling to buy the packages of mortgages that haveanything in them but the best (prime) mortgages.Even alt-A mortgages are harder to get, and forgetthe sub-primes. Capital (available money) isdrying up. If the rates weren't being cut, themortgage rates would still be rising becausemortgage companies are finally acknowledging theRISK in making all these mortgages to people whoare just paying way too much for homes for theirincome level. And, with congressmen talking aboutletting judges reset interest rates, and othernonsensical actions, the RISK to for the mortgagecompanies is going up even higher. As the risksrise, the rates rise. RISK has been revealed thatwas previously concealed. CAPITAL is harder tofind to loan out to homeowners. It's that simple.
- answered by MoneyMonkey
Answer #4
The Fed is lowering short term rates, which havenothing to do with the rates being charged onmortgages. Mortgage rates float with the 10-yearand 30-year treasuries, not with short-term rates.The rates on 10-year and 30-year treasuries areset by buyers of treasuries in the market, not bythe Fed, so those rates don't always change at thesame time or in the same direction as short-termrates.Additionally, due to the increased riskpremium of mortgages, the "spread" (amount chargedfor a mortgage above the 10 year treasury) is alsoincreasing. So even if 10-year treasury ratesfall, mortgage rates might stay the same becausethe spread is going up. The increase in spread isbecause more people are defaulting on loans and somortgages are perceived as a riskier investmentthan they used to be.
- answered by ananamas
Answer #5
The all are connected to the world trade center soto make it short they even out each other. Ratesgo up bonds go down then bonds go up rates godown. Example - Home prices lower rates go up,home prices rise then rates go down.
- answered by annacalbanese
Answer #6
The Fed has lowered their rate. The objective isto lower the cost of short term money for banksand businesses. Interest rates on long term loanshave traditionally trended inversely to the bondmarkets. Because of the "crisis" in lending thistrend is not so much the case any more. Additionally the turbulence in the stock market,the devaluation of the dollar just add to theconcerns of lenders. Mortgage Banks/Whole SaleLenders are for profit businesses. The cost ofmoney which a bank lends has gone down. Thepartially valid excuses of risk, foreclosure andprogram tightening are really only that- excuses. The losses many of the "Big Banks" incurred werecaused by greed and carelessness. The rate offoreclosure of up in many areas of the country,but not all- something rarely mentioned. Anotherthing glossed over is inflation. Gas, Corn, SoyBeans are up as much as 300% in the open market.(I digress.) Just a note: Banks are not requiredto loosen up loan programs. They are not requiredto make loans to borrowers who pay too much forhomes and can't affford them. Banks choose to lendin these markets because higher risk means higherprofit. The type of loans provided to goodborrowers, people with good credit, good income,low debt to incomes and reasonable loan to values;are no more difficult to sell/securitize thanbefore.2.5 weeks ago I could offer my clients5.125% on a 30 yr fixed today the rate was between6.00% and 6.25% depending on the investor. Whatchanged in a week---not much. The chairman of thefed said nothing new but nothing good. largefederally subsidized businesses reported lowerthan expected proifts or losses. And becasue ofthis instability(?) banks have the power of spinto reap higher rates.Short term money costs shouldhave gone down. Which means credit card ratesshould have gone down - they are up....Hmmm. Ifyou are shopping for a loan as the banker/brokeryou are working with to look at 7/1 or 5/1 arms. Ilocked (30 day) several cleints in today at4.875%. I'd have rather given them a 30 yr fixedhad rates co-operated but based on the math thiswas the best way to go. It may not be the case foreveryone but your lender can run the numbers andtell you for sure. Good LuckThis answer couldreally be sooo much larger.Edit: 02/28/09 - Rateslowered by as much as .375% this morning-- Goodtime to call your lenders an look at locking (nota must do).
- answered by dday2086
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