Do Lower FED Rates Signal That Mortgage Rates Will Fall?

Do Lower FED Rates Signal That Mortgage Rates Will Fall?
That depends.
The 30-year fixed rate mortgage is not tied to short-term treasuries. Fixed mortgage rates are tied to long-term bond yields that move based on anticipation of the economy and inflation. Fixed rates usually come down when there is outlook for slow economic growth. Long term mortgages are securitized and sold on the global market, and investors now demand a higher risk premium on these mortgages.
If you have 7 and 5-1 Adjustable Rate Mortgages (ARMs), there is good news, and it's tied to the treasury index. If the FED cuts rates, it usually signals better rates for ARMs.
If the FED cuts rates, those with Home Equity Lines of Credit (HELOC) will be pleased. HELOCs are mostly pegged to the prime rate, which moves in step with the Federal Reserve.

For good mortgage information, rates and products, contact Tim Sibley, First Capital Mortgage, 949-718-1511.

Posted by Harrison K. Long, Explore Group, Coldwell Banker Previews, April 27, 2008.