These days we hear something about the Federal Reserve almost every day. They are doing everything possible to get us out of the financial mess we find ourselves in. Many people think that mortgage rates are almost entirely decided by the Fed but this isn't exactly true. The fact is that most of what goes into establishing mortgage rates are mortgage bonds and mortgage backed securities. The Fed actually has very little to directly do with it.
Though the interest rate of the 10 year Treasury bill often fluctuates in tandem with the performance of mortgage backed securities, this is not always the case. Often the two seem to be operating in entirely different worlds, demonstrating that they are not actually closely linked.
WE often hear that the Fed is lowering interest rates. That sounds good on the surface, but what it actually means is that they are simply lowering rates on short term credit. This might save you a few dollars on credit cards if you have a variable rate and maybe you can save a few dollars on a small bank loan, but long term investments such as mortgages are not directly affected. Though rates may shift slightly in one direction or another, there is no real affect.
The thing that actually drives mortgage rates most directly is the trading of mortgaged backed securities. Investors seeing a market opportunity often convert shares of their mortgage backed securities for quick cash. This leads to the securities being worth less overall and interest rates are increased to make up for the loss. Now you see why an adjustable rate mortgage, one that varies with the market, is not necessarily a good idea. These days of huge market fluctuations make adjustable rate mortgages especially risky.
The truth is that no one can predict when rates will vary. A market that suddenly shows an opportunity can lead to a quick sell off and lead to rapidly increasing rates. The complexities of the market and the endless number of things that can cause market volatility make it a losing endeavor to bet on mortgage rates. For most people it's simply a matter of finding a mortgage you can afford and locking it in. Waiting for a drop is usually simply not worth the rate.
