No—emphatically no. The Federal Reserve sets the fed funds rate, the rate at which banks borrow from one another overnight. This does generally influence short-term rates, and sometimes longer-term rates as well, but the important indicator to watch if you wish to know where long-term (15- and 30-year) mortgage rates are headed is the ten-year Treasury note. The rates on 30-year fixed-rate mortgages tend to track that rate rather closely.

            Notice, though, that the 10-year note rate is set by open bidding. It thus is a true market rate, not set by an individual or an organization, but by all the people who want to invest in the note at a particular time.

            Now, if the Fed raises or lowers its fed funds rate, does that have a strong effect on any mortgages? Yes. The prime rate charged by banks—which many construction loans and other adjustable mortgages are linked to—rises and falls with the fed funds rate.

            More important, perhaps, is the simple fact that that the Fed’s action lets the markets know where it intends short-term rates to go. Adjustable rate mortgages are then moved into alignment with their index, usually a short-term rate like the 1-year Treasury, and thus the Fed had more of a say regarding adjustable loans than long-term fixed-rate loans.

            The moral of this story? The financial issues surrounding mortgages are always too complex to be explained with simplistic answers. When questions arise, seek out the seasoned wisdom of your real estate and mortgage advisors. For help with your transaction or more information call Lil at 530-550-5007 and visit our web site at www.alltruckeehomes.com.

The Schaller Family Realtors® are Associates of Dickson Realty.