So many people get confused when the interest rate is lowered. We watch the evening news and we think that the 'cut' will get us better rates on our loans when refinancing, purchasing, etc. We are even led to believe that our credit card rates will go down. This all is not necessarily true. I received the below today from one of my favorite lenders and with his permission I am sharing it with you:

"Our phones have been ringing at our office with everyone wanting to refinance since the FED lowered the interest rates. The media seems to be the first ones to say that this will make it easier for homeowners to get some relief on their home loans. The reality is, that is not totally true.

Here is how it works... When the FED lowers the FED Funds rate, rates on home loans usually go in the opposite direction. The reason is, when the FED 'lowers the rate', this rate is the money that banks lend/borrow money for overnight/short term. When this happens, usually the stock market goes up because the big money managers take money out of bonds to put into stocks as the lower FED rate usually spurs the economy. The result of taking money out of bonds is mortgage rates suffer because mortgages are tied directly to Mortgage Backed Securities which are bonds. This might be confusing to you & if it is, please don't hesitate to call. I would be happy to explain it in more detail.

As a side note, see the attached chart we put together that compares The FED rate vs. Mortgage rates. You will see that when Chairman Greenspan tried to make the interest rates go up to slow down the economy, it was to no avail. I can assure you, if you think the FED is in control of mortgage rates, that could not be further from the truth. They are almost always reactive to what is happening in the economy. "

__________________________
Mark A. Baker
Meridias Capital
The Mark A. Baker Team
"The Mortgage Experts"
(702)451-1040 Office

www.MaryWarren.com or www.MaryW.com