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Why mortgage rates are still heading higher

Posted by kim carpenter on March 18, 2008
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The Fed will probably cut interest rates again, but long-term fixed-rate mortgages may go up.

NEW YORK ( — The Federal Reserve is likely to cut interest rates again Tuesday, but don’t expect mortgage rates to go down too. In fact, home loans could be heading higher.

Consider recent history: The Fed issued an emergency cut of short-term rates in early January, and then trimmed more just a few days later – but the 30-year fixed mortgage rate has responded by bouncing up from 5.6% to 6.4%.

The Fed’s main tool is control over the short-term “Fed Funds” rate, which determines what banks charge each other for overnight loans. Long-term mortgage rates are mostly tied to the 10-year Treasury yield, which is determined by bond traders worldwide.


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