Why are home interest rates rising when the fed keeps lowering the interest rate?

I am a bit confused at why the interest rate on 15 and 30 year mortgages is rising and the Fed is lowering the interest rate. Shouldn't the mortgage companies be passing the savings on to the consumers? Isn't that the whole point behind the Fed trying to help our economy? Just wondering. If anyone knows the answer please let me know. Thanks.|||The Fed has lowered their rate. The objective is to lower the cost of short term money for banks and businesses.





Interest rates on long term loans have traditionally trended inversely to the bond markets. Because of the "crisis" in lending this trend is not so much the case any more. Additionally the turbulence in the stock market, the devaluation of the dollar just add to the concerns of lenders.





Mortgage Banks/Whole Sale Lenders are for profit businesses. The cost of money which a bank lends has gone down. The partially valid excuses of risk, foreclosure and program tightening are really only that- excuses. The losses many of the "Big Banks" incurred were caused by greed and carelessness. The rate of foreclosure of up in many areas of the country, but not all- something rarely mentioned. Another thing glossed over is inflation. Gas, Corn, Soy Beans are up as much as 300% in the open market. (I digress.)





Just a note: Banks are not required to loosen up loan programs. They are not required to make loans to borrowers who pay too much for homes and can't affford them. Banks choose to lend in these markets because higher risk means higher profit. The type of loans provided to good borrowers, people with good credit, good income, low debt to incomes and reasonable loan to values; are no more difficult to sell/securitize than before.





2.5 weeks ago I could offer my clients 5.125% on a 30 yr fixed today the rate was between 6.00% and 6.25% depending on the investor. What changed in a week---not much. The chairman of the fed said nothing new but nothing good. large federally subsidized businesses reported lower than expected proifts or losses. And becasue of this instability(?) banks have the power of spin to reap higher rates.





Short term money costs should have gone down. Which means credit card rates should have gone down - they are up....Hmmm.





If you are shopping for a loan as the banker/broker you are working with to look at 7/1 or 5/1 arms. I locked (30 day) several cleints in today at 4.875%. I'd have rather given them a 30 yr fixed had rates co-operated but based on the math this was the best way to go. It may not be the case for everyone but your lender can run the numbers and tell you for sure.





Good Luck





This answer could really be sooo much larger.


Edit: 02/28/09 - Rates lowered by as much as .375% this morning-- Good time to call your lenders an look at locking (not a must do).|||Greed. Plain old simple greed. The mortgage companies are bleeding cash on the foreclosures they have to keep making so they are missing all kinds of projected earnings benchmarks.





Since they have to get that money somewhere, banks are pretty much keeping their rates high to recoup some of their losses.





The Fed is lowering the rates at which banks lend money to EACH OTHER. The lenders in turn are screwing us.|||Unfortunately for us home buyers, the rate the feds keep dropping (and there's a good chance it will happen again) is not related to long term loans. Its only the shorter terms - credit card interest rates, etc.





With the stock market doing well and inflation on the rise, it will push up the mortgage rates.|||The correct answer is RISK and CAPITAL AVAILABILITY.





Large banks and investors are not willing to buy the packages of mortgages that have anything in them but the best (prime) mortgages. Even alt-A mortgages are harder to get, and forget the sub-primes. Capital (available money) is drying up.





If the rates weren't being cut, the mortgage rates would still be rising because mortgage companies are finally acknowledging the RISK in making all these mortgages to people who are just paying way too much for homes for their income level. And, with congressmen talking about letting judges reset interest rates, and other nonsensical actions, the RISK to for the mortgage companies is going up even higher. As the risks rise, the rates rise.





RISK has been revealed that was previously concealed.





CAPITAL is harder to find to loan out to homeowners.





It's that simple.|||The Fed is lowering short term rates, which have nothing to do with the rates being charged on mortgages.





Mortgage rates float with the 10-year and 30-year treasuries, not with short-term rates. The rates on 10-year and 30-year treasuries are set by buyers of treasuries in the market, not by the Fed, so those rates don't always change at the same time or in the same direction as short-term rates.





Additionally, due to the increased risk premium of mortgages, the "spread" (amount charged for a mortgage above the 10 year treasury) is also increasing. So even if 10-year treasury rates fall, mortgage rates might stay the same because the spread is going up. The increase in spread is because more people are defaulting on loans and so mortgages are perceived as a riskier investment than they used to be.|||The all are connected to the world trade center so to make it short they even out each other. Rates go up bonds go down then bonds go up rates go down. Example - Home prices lower rates go up, home prices rise then rates go down.