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Does The Prime Rate Affect Mortgage Rates?

By Ann White

There’s always a lot of commotion when the news comes out with a headline that says, “Interest rate are being cut by the feds”. You’ll focus on these kinds of news more often especially if you are thinking about refinancing, or getting a mortgage. However, it is important to know how mortgage rates affect mortgage rates directly and indirectly. You might be wasting your time waiting for the feds to make a move before you take any action. This article hopes to give you answers on how mortgage rates and prime rates affect each other.

Mortgage Rates And Federal Reserves

When people are talking about Feds, it usually means the Federal Reserve. When the Federal Reserve cuts rates it usually means the prime rate. When prime rates are lowered, it means banks also have lower interest rates against the Federal Reserve. Banks will also pass this lower interest rate to their promising or best customers. So what does this mean to the average Joe? It basically means that any loan that is directly related to the prime rate is also directly affected to its increase or decrease. Loans that are directly affected by the primary are generally the short-term loans such us home-equity line of credit or credit cards.

Mortgage Rates And Prime Rates

However, mortgage rates are not directly related to prime rates since they are considered as long-term loans. It does not mean that primates have no effect on mortgage rates. Prime rates do affect mortgage rates, but it is rather minimal or indirect. However, since it is a long-term loan, the factor that affects it the most is the market the bond market. Bond market has a significant effect on the mortgage rates that daily movements on the bond market also cause the mortgage interest rates to change daily.

Related posts:

1. How Does The Prime Rate Affect Mortgage Rates?
2. Does The Prime Rate Affect Mortgage Rates?
3. How Does The Prime Rate Change Mortgage Rates?
4. How Do Federal Rate Cuts Affect Mortgage Refinance?
5. What Interest Rates Determine Mortgage Rates?