Denver Mortgage Rates and The FED

Mortgage lender Jimmy Kinley told me how the Fed does not effect Denver mortgage interest rates.

Sometimes, Buyers and Sellers get confused about how the Federal Reserve Board does and does not effect Denver mortgage interest rates. So, we went to our best mortgage lender expert to explain the connection. Surprisingly,  a different index provides a better way to track the direction of mortgage rates.

Our business is about relationships with our customers and as well as the experts we work with in the real estate business.  For example, one of those experts is Jimmy Kinley with Cherry Creek Mortgage.  We have had a working relationship with Jimmy for 15 years. And,  over that period of time we have developed a strong business relationship as well as a strong personal relationship.

There is a lot of confusion about the Federal Reserve lowering rates and how that effects mortgage interest rates.  Are Denver mortgage interest rates going up. Or,  are they going down? When is a good time to buy and lock in an interest rate?

Most of the news on interest rates that comes across on the television is very confusing. So, we asked Jimmy to explain what is happening with Denver mortgage interest rates.

The FED does not raise or lower rates for mortgages

 Yes, that is 100% true.  Yes, the TV, newspaper, radio and every source seems to have this wrong and has always had it wrong.  I don’t know why. But,  I just want to make sure you know the truth.  The FED controls prime rate and FED funds rate. 

Prime rate is what drives your credit card or revolving accounts.  The only affiliation it has to a home is for a Home Equity Line of Credit (HELOC) 2^nd mortgage.  FED funds rate is the rate in which banks lend money to other banks.  As you can see, no affiliation to mortgage rates. 

Mortgage Backed Securities Drive Mortgage Rates

Pools of existing mortgages are traded as Mortgage Backed Securities (MBS)

So what drives a mortgage rate?  The Mortgage Backed Securities  markets.  These are indexes that can be trades and held like Apple stock.  When investors buy, the indexes go up and rates go down.  In addition, when investors sell, the indexes go down and rates go up. 

The FED raising or lower rates can have a very lose effect on mortgage rates. But, I bet its not what you think.  One of the biggest factors that causes investors to sell MBS’s (causing rates to go up) is inflation. Because, if the dollar is worth less, MBS’s are worth less.  When the FED cuts rates unexpectedly or more than most think they should, they create inflation fears. In turn, that causes mortgage rates to go up. 

Yes, I said the FED cutting rates can cause mortgage rates to rise.  This didn’t happen when the FED  recently cut the rates. Because, they only cut the expected .25%. And, they said they will likely slow down cuts. 

The bottom line is this. The FED cutting or raising rates should have no thought process in timing for buyers. Because, that never signals a guaranteed worse or better time to buy. 

Why Interest Rates for Homes Are Declining

Last week we saw rates get better at the end of the week because of President Trump talking about a new round of Tariffs on China.  That caused the stock market to dip and many investors moved their money to those Mortgage Backed Securities. MBS markets are a safe place to park money and earn a solid, yet modest, rate  of return when the stock market is shaky. 

Again, that causes the MBS market to rise and rates to decline. This is why usually when the stock market is doing bad, rates are getting better.  I think you’re getting the picture.  The only way the FED can influence MBS markets and mortgage rates is to buy or sell MBS’s.  No rate cut or hike has any direct effect on mortgage rates.  Honestly, the words the FED uses about the future outlook of the economy are usually what create the buy-in or sell-off of MBS’s and cause rates to move. 

Denver Mortgage Interest Rates Drop Slowly, Rise Quickly

This chart shows what a bargain our Denver mortgage interest rates are right now.

Since we are already half way down the rabbit hole let me say one more thing.  Why do rates always seem to trickle down slowly and jump up fast?  Now that you know that it is nothing more than simple investing, that will somewhat become clear.  Investors, or people like you and I, don’t typically buy investments with emotion.  We research and think before spending our hard earned money.

That is not always true when we sell.  If we (or investors) think that we are losing our money, we sell emotionally without as much thought or research.  This sell off causes more or us to sell because now the indexes are taking a dive and we are losing more money.  That’s why rates tend to spike up all at once and rock bottom is always in the rear view mirror. 

This is the market we live in now and I don’t see it ever changing.  Gambling with rates is always sketchy. Your odds are better in Vegas.  You see, there is just more risk than reward.  If the rates are good you should jump on it before they disappear again.  Rates are like gas prices, they trickle down and spike up. 

We are within quarter to a half of a percent of the lowest rates in the history of Denver mortgage interest rates depending on the loan type.  Don’t wait for them to get better.  If your going to buy, do it before they get worse.  Its not a question of if, it’s a question of when.  The average for a 30 year fixed loan is still around 8%.  I think half of that or even less than half is pretty amazing!