The Fed Funds Rate – Stress Free Mortgage

There has been a lot of discussion recently surrounding the Federal Reserve lowering their rate, and there is a common misconception about how that relates to mortgage interest rates. Here is some information to help you understand how this works.
The Federal Funds rate is the overnight rate that banks use to lend to each other, as well as the basis of the prime rate. The prime rate is what car loans, home equity loans and credit cards are based on. When the Fed lowers their overnight rate, it does not directly lower mortgage rates.
The Federal Reserve has had the same rate since September 2024, but the last time the Fed Rate moved down, people anticipated this would result in mortgage rates going down as well. However, this was not the case, and mortgage rates went up.
The Federal Open Market Committee (FOMC) meets eight times per year to review the latest economic and financial data. During these meetings, they assess things like inflation, employment and overall economic growth to determine whether interest rates need to be adjusted or left alone. Their goal is to support stable prices and maximum employment over the long term.
Once the market thinks that the Fed is going to lower the rate, which happened in August this year, then the mortgage rates improved and went down. The mortgage bond, which determines mortgage rates, has already priced in the Fed Cut so therefore, when the cut happens, it’s not as impactful to the mortgage rates.
Ultimately, if you have a higher rate, it could be a good idea to check if a refinance can save you money, even if it’s less than .50% reduction in the rate. Call Stress Free Mortgage at 661-295-0555 today to find out more or go to www.stressfreemortgage.com.