Does the Federal Reserve control mortgage rates?

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There is a common misunderstanding among homebuyers and homeowners that the Federal Reserve is responsible for controlling traditional mortgage rates. However, this is not entirely accurate.

The Federal Reserve does not directly control traditional mortgage rates. Instead, it influences the economy and financial markets through its monetary policy. The Federal Reserve's main tool for influencing the economy is the federal funds rate. This rate is the interest rate at which banks lend and borrow money from each other to meet their reserve requirements.

While the federal funds rate affects short-term and variable rates like credit card interest rates and personal lines of credit, it does not have a direct impact on traditional mortgage rates. Instead, traditional mortgage rates are determined by the supply and demand of mortgage-backed securities.

Mortgage-backed securities are a type of investment that is made up of a bundle of mortgages.

Investors buy and sell these securities, which in turn affects the interest rates that lenders offer to borrowers. When there is high demand for mortgage-backed securities, mortgage rates tend to go down. When demand is low, rates tend to go up.

Therefore, while the Federal Reserve's actions can indirectly influence traditional mortgage rates, it does not have direct control over them. Homebuyers and homeowners should keep this in mind when considering the impact of the Federal Reserve on their mortgage rates.

If you are a homebuyer or homeowner looking for guidance on mortgage rates or other aspects of home financing, consider reaching out to a mortgage professional. At Cornerstone Mortgage Group, we provide personalized mortgage solutions to help you achieve your homeownership goals. Contact us today to learn more.

* Specific loan program availability and requirements may vary. Please get in touch with your mortgage advisor for more information.