Why is the interest rate higher for potential home buyers when the Fed has cut the interest rate ?

My DH and I have an offer on a short sale home, and we went to the bank today to ask some questions about our potential loan and found out that the interest rate for our 30 year fixed loan has increased to over 7%. Today the Fed cut the interest rate to 1.5%. How do those cuts affect people with great credit who want to buy a home?|||the cut should bring the rate down not the other way around. This all comes down to how much down you have and how your credit is. You said great but didnt mention a score. My wife and I got a loan this week for a new home and we got 5.85% fixed for 30. our credit scores are both in the 780 region. I would sugges tyou shop around some if your scores are similar.|||There isn't an absolutely directly relationship between the prime rate and home mortgage rates. It's indirect, but they're based on/used for two very different purposes.





Having said that, sure, a cut in the prime, if anything, will lead to lower rates.





You're being quoted a high rate for a 30 year fixed. However, that's one of the effects of the credit crunch. You should definitely shop around for a loan. Don't just consider or get quotes from one lender. Definitely consider consulting with a good mortgage broker, who has access to many different programs and plans.|||It depends on the term of the loan. If they are offering your 30 year fixed it will certainly not be at 5.0 percent. I have seen 5 year fixed at 8.5 percent. Because the economy is so shaky. Banks are loosing money left and right with a fixed term of 30 year over 6.5 - 8.5 % is reasonable. I could see a 5 year fixed at 4.5 or something. But the longer the term the higher the rate. |||Actually, rate cuts by the Fed don't really effect housing interest rates. With credit standards tightening actually 7% might not be bad depending on your credit score. Also, be careful. If you are getting your loan from a non traditional brick and mortar bank (AKA mortgage broker/lender), odds are you are paying something known as yield spread premium. This is another way for the mortgage broker/lender to make extra money off of you. Check your Good Faith Estimate. Unfortunately, a lot of brokers will place a range of 0 to 4% so it covers them. If you are not paying any up front fees this is justified but if you are paying origination, processing, administration, etc... you might be paying too much. Call your loan officer and ask. |||Because mortgages are tied to the LIBOR rate not the short term interest rate the Government is lowering|||No one wants to loan anything for 30 years. Too much uncertainty..