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Fed cuts rates and mortgage interest rises

The following information is provided by a local mortgage broker in our area:
You may have noted the endless news stories regarding rates being down due to the recent and pending 'Fed cuts'. Unfortunately, but not surprisingly, the press often misrepresents the facts regarding how Fed cuts effect mortgage rates. Here is the way things really work: Fed cuts and mortgage rates are not directly related. In fact, when the Fed cuts short term rates, mortgage ratesfrequently spike as stocks oftenrally on the news (pulling money from bonds and mortgage backed securities). Aggressive cuts can also spark the fear of inflation which eats away at thevalue of bonds(pushing rates even higher). The Fed rate cuts directly effect the Prime rate only. The Prime rate is the short term rate that most home equity lines and credit cardrates are tied to. Long story short, mortgage rates are volatile but have been up a bit recently due to the fed cuts and the proposed 'stimulus' package.

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