When Do Mortgage Rates Fall?

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Mortgage rates fall when the federal reserve lowers their rates to lend money to banks, in turn creating lower first mortgage rates for borrowers. Get a loan when mortgage rates are low with advice from an experienced mortgage broker in this free video on personal finance.

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Video Transcript

Hi, my name is Matt McKillen, and I'm with Innovative Financial Group. I had an interesting question posed to me today, when do mortgage rates fall? Generally, when mortgage rates fall is determined by a few different factors. One of the main factors involved in dropping of rates is that the Fed is lowering the amount of the rate from bank to bank. Now, you've heard of the term the prime rate. The prime rate is basically a lending rate that the banks put out, and it's usually tied to home equity lines of credit. When you hear that prime is dropping it doesn't necessarily correlate with what the first mortgage rates are doing. The first mortgage rates are usually driven by what's called the fed rate, and the fed rate is basically the money, the interest rate that the Federal Reserve is charging banks to borrow money. As the federal rate drops from bank to bank it also floats over, and the banks start offering the interest rates on their first mortgage products at a much lower rate of interest also. To give you an example, if a bank is borrowing money at one percent they're going to offer, let's say, the money at four percent to the consumer. If the bank is offering a, if the bank is borrowing at a rate of let's say five percent then they would be offering three percent higher, or eight percent to the consumer, so as the Fed lowers the cost of borrowing money to the major banks then we, in turn, will see a fallen mortgage rates for the consumer. Thanks again for asking the question. My name is Matt McKillen. I'm with Innovative Financial Group.

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