Homeowners need to be very careful of Federal Reserve Bank. Whenever there is a board meeting of Federal Reserve Bank, mortgage interest rates either increase or decrease.
As evident from the name itself, Federal Reserve Bank acts as the bank for the federal government in US. It’s the responsibility of Federal Reserve Bank to sets monetary and financial policies. In all, there are 12 branch offices of Federal Reserve Bank through out US.
The main function of Federal Reserve Bank is to manipulate fiscal policy. By doing this, they fine-tune the economy. Fluctuation in interest rates can lead to major economic slow down. That is where, Federal Reserve Bank play a prominent part in controlling the mort
gage interest rates. There are number of people who are of the opinion that interest rates are set by the Federal Reserve but the fact of the matter is that it is not true.
Federal Reserve just gives direction to the financial institutions regarding the interest rates that they must offer to the borrower.
It is mandatory in US that every financial institution must hold back a percentage of its monetary assets. In other words, financial institutions are pretty much forced to maintain a savings account. Ironically, this cash cannot be given to the consumers but yes other financial institutions can easily get it.
In exchange for all this, financial institution generally agrees to pay back the amount at an interest rate, widely been regarded as the federal funds rate. The Federal Reserve determines this rate.
You may be quite eager to know how the federal funds rate can have an impact on the mortgage rates. It is worth mentioning in this regard that financial institutions often react to the federal funds rate universally, irrespective of the fact that whether mortgage interest rates is increased or decreased.
Mortgage interest rates increase if the federal funds rate is increased by a quarter point. It has been noticed that bond market also has an impact on the mortgage interest rates.