As we all know, the Federal Reserve has
twice now in the last 10 days or so cut the Fed Funds rate. With all the media
coverage of those rate cuts, I’ve been getting a lot of questions about just
what that means to homeowners and those thinking about buying in the near
The first thing we all need to understand is that the Federal Reserve
just doesn’t set mortgage rates. Who or what does? The bond market does. And
these rate cuts by the Fed had already been factored into the bond markets.
OK, so what does that really mean? The
Federal Funds rate is the rate that banks use to borrow money from each other,
and it’s also used to derive all other interest rates – mortgages, credit cards,
etc. That rate is used by banks to determine the prime rate for lending.