can someone please explain how fed rate cuts effect mortgage rates?

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Maybe this is a really stupid question.

I hear about the fed cutting rates by (aprox) 2.25% over the past few months. I want to refinance from a 5yr interest only ARM (100% financing / 6.5% rate / as of 09/06) to a 30-yr fixed rate loan. I keep hearing that the recent fed rate cuts don’t effect fixed-rate mortgages much. Is that true? Can someone please explain how and why this is?

Also what’s the difference between APR and Rate? (like on the site)

  1. Reply
    AM-NM centaur
    April 29, 2011 at 11:57 pm

    They have little direct impact. Rates typically follow the US Treasury 10YR issue. Due to the recent credit crunch, rates haven’t fallen as much as they should have. Therefore, the FED FUNDS rate cut could help reduce mortgage rates by making more money available for lending. My point is that under normal circumstances, a cut to the FED FUNDS rate usually has no impact on mortgages.

  2. Reply
    charlotte q
    April 30, 2011 at 12:43 am

    Go to this website:
    It is an excellent source of how banking etc. works.
    You can look up any financial question here!

  3. Reply
    April 30, 2011 at 12:49 am

    The fed can only lower the discount rate. When they do that it will lower other short-term rates like the prime rate. Mortgage rates are forward looking rates so they may be rising because mortgage lenders are anticipating higher interest rates in the future. Also inflation is in the picture so that cuold be a factor as well. APR stands for annual percentage rate. APY is annual percentage yield. APR is the rate. You can divide the APR by 365 days to get the daily rate.

    I hope this helps.

  4. Reply
    April 30, 2011 at 1:21 am

    Unless you have a fixed-rate mortgage, the current mortgage interest rates are very important to deciding how much you should pay every monthcompanies offer different interest rates so it is a good idea to shop around for the best deal before settling on one particular lender.

  5. Reply
    Laissez-Faire Guy
    April 30, 2011 at 1:25 am

    Fixed rate mortgages are independent of the Fed Rate cuts.

    It’s because mortgages are packaged and sold off to investors after they are made. Investors won’t buy them, especially in today’s markets, without a good return on the money.

  6. Reply
    April 30, 2011 at 2:01 am

    They will have an effect on new mortgages (which will have lower rates) ; and Adjustable rate morgages (which will adjust to lower rates & may not adjust at all. Fixed rate mortgages have a FIXED RATE so nothing changes them. Thats what “fixed” means.

    APR is the governments method of applying the interest rate on a note to the actual funds delivered at closing (the note amount less certain charges paid at inception) which has the effect of making the APR higher than the stated interest rate.

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