Don’t Wait for the FED on Jan 30th to Refi–It May Cost You


Since I’ve been saying this over and over again this past week…I thought I might as well blog it too.   PLEASE DON’T WAIT UNTIL WEDNESDAY TO REFI OR LOCK YOUR RATE.   When the FOMC moves the Fed Funds Rate, it does not directly change mortgage rates.  If you have a HELOC (home equity line of credit), when the Fed Funds rate is adjusted your heloc is impacted because the Prime Rate is based on the Fed Funds Rate (Prime Rate = 3 percent plus the Fed Funds Rate).

Mortgage rates may react to the adjustments made to the Fed Funds Rate.  Mortgage rates are not controlled by the Fed.  Mortgage interest rates are based on mortgage backed securities (bonds).  Mortgage interest rates may change often…sometimes several times a day based on trading. 

Often times, if the stock market is doing great, bonds will suffer because investors are pulling funds out of bonds to gain a better return in the stock market.  Therefore, mortgage rates go up in order to attract investors back with a better return.  The reverse is also true.  If the stock market is tanking, investors may seek the safety of bonds, like mortgage backed securities. The result is that mortgage rates will improve as more traders seek their shelter.

Much of trading is based on speculation.  Currently (at least the last report I heard today) traders are anticipating anywhere from a 0.25% – 0.50% cut to the Fed Funds rate on Wednesday.  Again, good news for those of you have a HELOC…not so, perhaps, for those who have not locked in your interest rate and are hoping to close in the next 30-40 days.   When things happen in the market that are not expected (like when the FOMC made the surprise 0.75% cut to the Fed Funds Rate), the market (traders) reacts dramatically for better or worse.   A cut to the Fed Funds rate is all ready priced into the market.  Traders expect it.  If the Fed does not cut 0.25 – 0.50% we will see more volatility with mortgage rates.  (We may have swings in trading whether the FED cuts 0.25% or 0.50% because different "trader camps" are expecting one or the other).      

Wednesday of last week, rates were at a low we haven’t seen in years and by the next day, we had popped up 0.5% to rate!  Lenders were inundated with people wanting to refi and many were not able to do so.  I heard from several home owners that they think rates will go down further or that a well-meaning friend thinks this or that with rates.   Please learn as much as you can about how mortgage backed securities work and/or rely on a Mortgage Professional to help guide you through these historic times in the mortgage industry.

This week is heavy duty for data that impacts mortgage interest rates.  Ask your mortgage advisor (who ever you’re getting mortgage advice from: a Loan Originator, CPA, friend, family or co-worker) what major events are scheduled to take place this week that may impact mortgage rates?  If they can’t answer, should you rely on them for mortgage advice?   

Here’s a clue to the answer.

Graph courtesy of Loan Tool Box.   


  1. Abdulrasool Sumar says:

    I think you are playing the short term interest game, however a 5-1 Adjustable Rate mortgage of $350,000 was @ 6.52% fixed interest in Oct 7th, 2007. However now, the rate for that loan was 5.04% this week starting January 21st, 2008.

    So as the Fed cuts interest rates, mortgages rates will move even lower over the longer term. Right now the Fed funds rate is @ 3.5% and it is expected that the Fed might not be done cutting until it is 1% – 1.5% so I think it is still worth waiting. You can read more about this on my blog @ It would be my pleasure to revisit this article in a few months and find out where mortgage rates stand… thanks!

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