It is important to realize that there is not one interest rate, but many interest rates.
Prime rate: The rate offered to a bank's best customers.
Treasury bill rates: Treasury bills are short-term debt instruments used by the U.S. Government to finance their debt. Commonly called T-bills they come in denominations of 3 months, 6 months and 1 year. Each treasury bill has a corresponding interest rate (i.e. 3-month T-bill rate, 1-year T-bill rate).
Treasury Notes: Intermediate-term debt instruments used by the U.S. Government to finance their debt.
Treasury Bonds: Long debt instruments used by the U.S. Government to finance its debt. Treasury bonds comes in 30-year denominations. Federal Funds Rate: Rates banks charge each other for overnight loans. Federal Discount Rate: Rate New York Fed charges to member banks.
Libor: London Interbank Offered Rates. Average London Eurodollar rates.
6-month CD rate: The average rate that you get when you invest in a 6-month CD. 11th District Cost of Funds. Rate determined by averaging a composite of other rates.
Fannie Mae Backed Security rates: Fannie Mae pools large quantities of mortgages, creates securities with them, and sells them as Fannie Mae backed securities. The rates on these securities influence mortgage rates very strongly.
Ginnie Mae-Backed Security rates: Interest-rate movements are based on the simple concept of supply and demand. If the demand for credit (loans) increases, so do interest rates. This is because there are more buyers, so sellers can command a better price, i.e. higher rates.
If the demand for credit reduces, then so do interest rates. This is because there are more sellers than buyers, so buyers can command a lower better price, i.e. lower rates. When the economy is expanding there is a higher demand for credit so rates move higher, whereas when the economy is slowing the demand for credit decreases and so do interest rates.
The supply/demand equation for mortgage rates may be different from the supply/demand equation for interest rates. This might sometimes result in mortgage rates moving differently from other rates.
The loan professional that has made this information available to you specializes in assisting those individuals with obtaining a loan whether for purchase or refinance.
Your loan professional in most cases can advice you on the best approach and help you with your specific loan requirements.
The purpose of this newsletter is not to give legal, insurance or tax advice. The purpose is to stimulate thought for our clients and those professionals we network with.