We feel that this is a topic that is widely misconstrued by many homeowners. In the most simple form, mortgage rates are tied to Fed policy decisions about as much as they are tied to the price of pork bellies!. This may be a slight exaggeration, but we have seen some Fed rate cuts that have preceded decreasing mortgage rates, and other rate cuts that have preceded increasing mortgage rates. It’s enough to confuse anyone! Wait! Maybe Fed rate cuts don’t have a direct bearing on mortgage rates! Sure, Home Equity Lines of Credit are tied to Prime , but that’s about it. Maybe there is more than just one thing that affects mortgage rates.
Since I know you’re burning with curiosity, I’ll give you a short version of the answer. Here goes….Almost all mortgage rates are in direct relationship with the yields of Mortgage Backed Securities (MBS). These are basically bonds : When the price goes up, the yield goes down. Their yields vary directly with mortgage rates and they are responsive in a similar way to other types of bonds. So since inflation decreases today’s value of the dollar, and since bonds return a fixed income, inflation makes bonds less valuable. When something is less valuable, less people want to buy it, so the price goes down to attract buyers. When the price goes down on a bond, the yield goes up.
Tip: Look in the direction of the 10 year bond rate and you will have a leg up on the direction of mortgage rates.