You might recall that we’re in the process of re-financing our mortgage at a rate of 5.125%. The rate came with two float downs, so if the rate drops before we close, we’ll get the lower rate.
Unfortunately, even though the Federal Reserve has since lowered the federal funds rate, the rate at our lender has gone up to 5.375%. That made me curious. I’ve known for a while that the mortgage rate often doesn’t drop following Fed cuts, but I finally wanted to know why that is.
The best explanation I could find was this About.com article, which states that rates are based solely on Mortgage Bonds or Mortgage Backed Securities, and therefore are slower to react to rate cuts than other financial sectors. I still don’t understand why mortgage rates go up when the trend should be down, though.
Are rates going to stay where they are or maybe even go higher? I hope not. I’m being cautiously optimistic that rates will go down again because the Fed is still buying mortgages. And we still have some time.