How the Fed Funds Rate Affects Mortgage Rates

How the Fed Funds Rate Affects Mortgage Rates

The Fed Funds Rate and its Effect on Mortgage Interest Rates: Mystery Revealed. The Fed Funds Rate. Mysterious as it is shifty. To most of us it’s a term we hear often but aren’t sure exactly how it relates to our wallets. So when we hear about the Federal Reserve changing the Fed Funds Rate, what does that mean? Are credit card rates going down? Should we flood the retail stores with credit card charges? Or are mortgage rates plunging? Should we buy a home(and fast)? Here we’ll shed some much needed light on this shadow jumper of sorts, by giving you the basic info you need to take the mystery out of the Fed Funds Rate. What is the Fed Funds Rate? The Fed funds rate is the rate at which banks loan money to each other. (Yeah, and..?) I know. We promised light… not a Bic in a black hole. I’m getting there. What do changes in the Fed Funds Rate affect? The big answer? Short-term rates. But let’s expand on that. Credit Card Interest Rates. Chances are you have a card with an interest rate that’s tied to prime. Prime is simply three percentage points greater than the Fed funds rate (If the Fed Funds rate is 4.25, the Prime Rate would be 4.25% + 3.00% = 7.25%), so a lower Fed Funds Rate would make the interest rate on your credit card decrease. Savings Accounts, Money Market Accounts, CDs. The Fed Funds Rate is directly related to…

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