Debbie Siegel's Mortgage Minute
How much should you worry about "The Fed?"
The next meeting of the Federal Open Market Committee, more commonly known as
"the Fed," will be held March 27-28. Potential clients often call me
in a panic saying, "I've got to finalize my mortgage before the Fed
raises rates." Should you rush to lock in a fixed rate mortgage before
the end of March?
You can spare yourself unnecessary anxiety if you learn about the
relationship between Fed actions and the rates charged on
mortgages.
The Fed meets regularly to set targets for two kinds of
short-term interest rates:
- The "Fed Funds Rate" is the interest rate at which depository
institutions lend balances at the Federal Reserve to other depository
institutions overnight.
- The "Discount Rate" is the interest rate charged to commercial
banks and other depository institutions on loans they receive from
their regional Federal Reserve Bank's lending facility ("the discount
window").
* Next 37 17 investors only!
The key phrase here is "short-term." When the Fed makes
a policy pronouncement, it's more likely to influence short-term rates
like these.
If you've got an adjustable rate mortgage or home equity line of
credit that's priced at the prime rate plus a margin (portion above
the base rate) then yes, you're likely to feel the impact of
fluctuations in the short term rates. Banks change their prime rate -
the rate they charge for loans to their best corporate customers -
immediately following a Fed rate change. (Note that not all
ARMs are tied to the prime rate.)
If, on the other hand, you're looking for a 15-year or 30-year
mortgage, you'll likely feel no impact at all by the Fed meeting.
Long term mortgage rates are set off the 10-year Treasury - a rate
that's not based on short-term rates influenced by the Fed.
So before you jump to any conclusions, make sure you're clear on how
the next Fed meeting will impact the mortgage you decide to purchase.
Got questions about real estate financing? Contact
Debbie@westchester-mortgage.com
or 617-965-1236. She'll consider them for
inclusion in a future column. Debbie Siegel is president of Westchester
Mortgage in Newton, Mass. She is licensed in several Northeastern states.
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