Finance Articles

Numbers Don't Lie: LoanBiz.com Analyzes Correlation Between Federal Funds Rates and Home Mortgage Rates

Reno, NV (PRWEB) March 19, 2008 -- Opinions concerning the impact of the Federal Reserve's most recent rate cut of 0.75% vary widely, even on the Reserve Board itself. LoanBiz.com (http://www.loanbiz.com/), a site focused on providing mortgage industry news, information and consumer education, has analyzed historical interest rate data and offers a comprehensive view of the impact of this rate change on consumers with different mortgage products.

The effect of this recent rate cut (http://www.loanbiz.com/fed-rate-cut.htm), if it follows historical patterns, should impact the following mortgage products differently (http://www.loanbiz.com/fed-rate-cut.htm):

?    Fixed-rate mortgages (http://www.loanbiz.com/fixed-rate-loans.htm) -- Fixed-rate mortgage pricing is driven by bond markets, and bond markets are influenced by future expectations of inflation. Cuts in the Federal Funds rate mean an increase in the money supply, meaning more money competing for the same resources can drive up prices. Cuts in the federal funds rate may therefore result in increases to 30-year-fixed mortgage rates.

?    Home Equity Loans (http://www.loanbiz.com/home-equity-loans/home-equity-loan-financing.htm) -- Home Equity Loan rates are generally based on the prime rate, and the prime rate almost exactly parallels the Federal Funds rate. Therefore, a decrease in the Federal Funds rate will almost certainly lower the prime rate and thus home equity loan rates.

?    Adjustable Rate Mortgages (http://www.loanbiz.com/home-loans/arm-loan-mortgage-primer.htm) (ARMs) -- There is a much higher correlation between the Federal Funds rate and ARM rates. Homeowners facing impending rate resets may find that the cut results in a lower rate than expected; homeowners whose loans have reset in recent years may see a rate reduction at their next adjustment.

Analysis of past mortgage and monetary market data has shown to be a fair predictor of the influence Fed rate changes have on home loan rates. Knowing how changes can affect personal situations may help borrowers and investors in making financing decisions.

Loanbiz.com is the number one source for loan business news, information and consumer education. We provide a wealth of loan information, including loan tutorials, how-to guides, calculators and up-to-date news. LoanBiz.com leverages industry experts, government data and our own industry analysts to bring you the necessary data, articles and calculators to help you make the right decision during your loan product search

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