Scott Kinne First Heritage Mortgage

Scott Kinne's Mortgage information Blog

  • About Scott
  • Testimonials
  • Resources
    • First Time Home Buyer Tips
    • First Time Home Seller Tips
    • Closing Costs
    • Home Appraisal
    • Home Inspection
    • Affordable Credit Repair
    • Interest Rates
    • Loan Programs
    • Loan Process
    • Loan Checklist
    • Mortgage Glossary
    • Mortgage FAQ
  • Main Website
  • Contact
  • Apply

Like The Fed Funds Rate, The Fed’s Discount Rate Does Not Control Mortgage Rates

August 21, 2007 by Scott Kinne

The Federal Reserve lowered the Discount Rate Friday and that has no direct bearing on mortgage rates

Friday, the Federal Reserve lowered its Discount Rate by 0.50% in an effort to preserve liquidity among our nation’s banks.

This has nothing to do with mortgage rates that people like you and I get for our homes. Well, not directly at least.

The Discount Rate is the rate at which banks borrow money from the Federal Reserve. It is different from the Fed Funds Rate which is the rate at which banks borrow from each other.

After the adjustment last week, the Discount Rate now stands at 5.750%; the Fed Funds Rate is 5.250%. Note that the Fed “charges” more than other banks because it wants to be the “lender of last resort”.

And last week, it was.

When the Fed lowered the Discount Rate Friday, it signaled that it was concerned for the nation’s banks and their liquidity. A reduced Discount Rate strengthens the system by lowering bank operating expenses and increasing capitalization.

The Fed also extended its normal payback period from one day to 30 days. The additional 29 days buys extra time for banks to rebalance their books through asset sales or debt issuance.

On Friday, mortgage rates fell in response to the Discount Rate announcement, but not because the two are related.

Inflation devalues mortgage bonds and the Fed’s move signals that inflation pressures may be subsiding. When the inflation is falling, mortgage bonds improve in price and these higher prices yield lower rates.

This is why mortgage rates dipped. Not because the Fed lowered the Discount Rate, but because what the lowering signaled about the economy.

Filed Under: Uncategorized

Scott Kinne

Contact Scott

Vice President, Senior Loan Officer
NMLS ID #182351
Office: 703.293.6146
Mobile: 571.237.6241
Fax: 571.317.2478
skinne@fhmtg.com

Licensed In Maryland, Virginia, Washington D.C., West Virginia
  LOAN APPLICATION
  FREE RATE QUOTE

Connect with Me!

Sign Up For My Free Newsletter

Categories

Recent Posts

  • S&P Case-Shiller Home Price Indices: Home Prices Fall In November
  • Is It Worth It to Put More Than 20 Percent Down?
  • What You Need To Know About A Closed-End Second Mortgage
  • What’s Ahead For Mortgage Rates This Week – January 30, 2023
Equal Housing Lender
nmlsconsumeraccess.org
First Heritage Mortgage, LLC, Company NMLS ID #86548

Our Location

3201 Jermantown Road
Suite 800
Fairfax, VA 22030
Business: 703-293-6146
Cellphone: 571-237-6241

Copyright © 2023 · Powered by MySMARTblog