A local mortgage broker explains interest rates
Mortgage rates have fallen in recent weeks
– I get a lot of calls from people who are confused when they hear this on the news: “The Fed is raising rates.” What does this statement actually mean?
The rate they charge is the federal funds rate. The federal funds rate is the interest rate that major banks charge each other to borrow funds overnight to meet their liquidity needs.
This has an impact on the cost of credit in the rest of the economy. This pull-through is not necessarily immediate, but the objective is to increase the cost of credit as a whole.
Mortgage rates are directly affected by the returns paid on mortgage-backed securities. These are asset-backed securities, made up of a pool of mortgage loans. When demand for these securities drops, the yield (yield) they pay must increase to attract investors. This return is created by interest, so rates go up.
I wanted to clarify these things because while the Federal Reserve has continued to raise the fed funds rate, mortgage rates have come down over the past few weeks.
The rise in mortgage rates from historic lows has sidelined many buyers. However, the recent high spike was on June 23.
Many recent homebuyers would probably be surprised that rates have come down almost a full percentage point, which makes a huge difference in monthly payments.
I know the recent housing and interest rate inflation has turned a lot of people off. I hear this from people every day. My intention here is to say that things have improved recently.
Sellers are becoming more accommodating, which can give the buyer some flexibility to use strategies that make things more affordable. The extreme competitive environment that left so many discouraged has eased a lot.
Basically, if your dream is to buy a home on the Central Coast, don’t give up. Prepare, plan and strategize. Things are looking up.
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