Q&A: Federal Interest rate vs. Home Mortgage Rates?

Posted on Oct 20, 2012 in HARP Refinance

federal home mortgage
by Center for American Progress

Question by Kyle: Federal Interest rate vs. Home Mortgage Rates?
So when the rate is cut how long does it take to reflect the cut for home mortgage rates? I’m thinking about buying a house and I just heard the federal interest rate is being cut to 1% (historic low). When will home mortgage rates reflect this cut? How low on average in % will they go (if its possible to know)?

Best answer:

Answer by Tomas
When they say the feds cut the rate they are not talking about home loan rates. They mean short term loans like cars loans, prescription ed credit cards and such. The mortgage loans are based off of the 30 year treasury bond.. which is why you don’t necessarily see those rates come down when the fed ‘cuts’ the rate.
hope this helps.

What do you think? Answer below!

4avg.rating 13 votes.


  1. There has not been a correlation between the Fed rate and mortgage rates for nearly 2 years.

    Rates were artificially low when the prime rate was higher to trap more of us and sell more homes.

    Now, fed rate is low and mortgage rates are climbing.

    Keep in mind that historically mortgage rates are incredibly low for 30 year, fixed rate mortgages.

    Here is an example of interest rates over the past 30 years

    1978 – FHA loan, 18%
    1985- private land contract, 11%
    1991- traditional mortgage, 20 year 10%
    2004-traditional mortgage 30 yr, 5-6/8%

    So, rates now are not that much higher than all time lows.

    With the reversal of free and easy credit-to the new way (which is old way) hard to find, few approved credit-rates are not going to go much lower–unless you are getting an adjustable rate ARM with a artificially low intro rate, which is one of the main reasons for foreclosure now.

    Good luck and don’t worry about the mortgage rate, worry about having enough down payment & income to afford to own your home now.

  2. There is no guarantee that a cut in Fed Rates will drop Home Loan Rates. In fact, a fed rate cut could actually force home loan rates up! Don’t assume that a cut in one means a cut in the other.

  3. The Fed rate is not at all tied to Home Mortgage Rates. Don’t hold out thinking that your interest rates will be effected by this Fed cut. Interest rates for mortgages having been creeping up.

  4. The big impact is that the banks will have money to loan you. Loans are tough these days because the banks are going belly up, they can not lend money they do not have.