Thursday Poll - Guess the Interest Rate

On Tuesday the Federal Reserve held interest rates steady at 5.25%.  Actually, the only rate the Fed held steady was the Fed Funds Rate, the rate that banks charge each other to borrow money on a very short term, usually overnight.  The direct effect on the general public is virtually nothing, but the indirect effect is tremendous. 

All interest rates in the U.S. are affected by the Fed Funds Rate including mortgage rates.  More important than the actual rate is the direction of the rate.  The current rate has remained unchanged since August of 2006.  And the Fed has made no indication of lowering it or raising it in the near future.

Unlike the Fed Funds Rate that moves very infrequently, the rates on mortgages move daily.  This is because mortgage rates are directly affected by market conditions and market forces.   Therefore, in the course of a year when the Fed Funds Rate hasn't moved, mortgage rates have varied significantly.

Other factors that affect mortgage rates including the type of loan you get.  The longer the fixed length of maturity, the greater the fluctuation in rate.  A 5/1 ARM will typically vary less from day to day than the interest rate for a 30 year fixed mortgage.  Location of the loan is also a factor.  If the foreclosure rate of a location is increasing or unemployment is increasing you can expect rates to move faster in that location than an area with less risk. 

It is always good to know where interest rates are in your relative area.  Here in Loudoun County, the majority of homes will be purchased with a jumbo loan versus a conventional loan.  A jumbo loan is defined as a loan that is larger than $417,000.

And because of the backlash against ARMs, we are seeing a lot more families opting for a 30 year fixed rate mortgage.

So today's poll asks the question:

Follow this link to find the answer

Comments

[Don Baker]

Why the rise in rates in Loudoun County?

[Danilo Bogdanovic]

Don,

I would imagine you would already know considering the company/site you're associated with. It's due to investors fleeing, money to lend drying up, tighter lending/credit guidelines due to the rise in defaults and foreclosures, the secondary mortgage market getting skiddish about buying up loans, as well as other factors.

And it's across the board, not just Loudoun County. The Washington, DC metro area including Maryland and Virginia is actually much better off than a lot of other regions/cities in the US.