Fed Rate Cut Explained

September 18th Update from Sean Balcom, Michigan Mortgage Expert

The recent Fed rate cut has sparked many questions about its impact on mortgage rates. If you’re wondering why mortgage rates sometimes react differently than expected, you’re not alone. Let’s break down what this means for homebuyers and homeowners.

How Fed Rate Cuts Affect Mortgages

The Federal Reserve recently announced a cut to the short-term federal funds rate. This decision influences the prime rate, which directly affects short-term loans and lines of credit. However, mortgage rates don’t follow the Fed rate directly. Instead, they’re tied to mortgage backed securities, which adds an extra layer of complexity to how they respond to economic changes.

Why Mortgage Rates Went Up Despite the Fed Rate Cut

Contrary to what many expect, mortgage rates actually went up slightly following the Fed's rate cut. Here’s why:

1. Mortgage Rates and Mortgage Bonds: Mortgage rates are primarily influenced by mortgage-backed securities (MBS). When demand for these securities is high, The Price goes up and the rate responds inversely by going down. Conversely, when demand is low, mortgage rates go up. ? Anything can affect the market, including the traders themselves and good old-fashioned human emotion.?Anyone who knows what rates are going to be in the future could literally be a trillionaire. It is the same thing as knowing what a stock price is going to do in the future.??
2. Market Expectations: Before the Fed meeting, investors had already anticipated the rate cut, leading to lower mortgage rates in the weeks/days prior. When the Fed's decision met expectations, mortgage rates slightly adjusted upward.
3. Expectation vs. Reality: If the Fed had cut rates more than expected, mortgage rates might have decreased further. However, if the Fed had cut rates less than expected or indicated fewer cuts in the future, mortgage rates could have seen a more significant increase. It's all about managing market expectations.

What Fed Rate Cuts Means for Homebuyers & Homeowners

While the Fed rate cut can influence mortgage rates, the relationship isn't as straightforward as it seems. The key takeaway is that mortgage rates are driven by multiple factors, including economic indicators, investor sentiment, and the broader bond market.

• Homebuyers: Don’t panic if mortgage rates go up slightly after a Fed rate cut. Rates fluctuate based on a range of economic factors, so it’s still possible to secure a competitive rate.
• Homeowners: If you’re considering refinancing, keep an eye on market trends. The best rate for you depends on your financial situation and timing within the market.

Have Questions About Rate Cuts & Your Mortgage?

The mortgage market can be complex, and staying informed is crucial. If you have questions about how the Fed's decisions impact your mortgage, I’m here to help. Feel free to give me a call for personalized advice on navigating the ever-changing mortgage landscape.

Contact Information:

• Phone: 810-223-8412
• Email: seanbalcom@gmail.com

Video Explaining the September 18th Federal Reserve Rate Cuts