News & Events

Learn More About the Federal Funds Rate Cut

Posted March 18, 2020

On March 15, 2020, the Federal Reserve has cut the federal funds rate to a range of 0% to 0.25%. At First State Bank Mortgage, we find it imperative to educate our customers; past, present and future, on how or if this will impact mortgage rates.

While we have seen a large dip in mortgage rates with respect to the COVID-19 pandemic in past weeks, the Fed’s 0% rate declaration does not directly impact mortgage rates, but it may have a future indirect impact.

Here is why: The federal funds rate is the interest rate at which depository institutions lend reserve balances to other depository institutions overnight and is on a short-term basis. This has more of an impact on credit card rates and home equity rates as opposed to mortgage rates. Mortgage rates are based on long-term commitments and tend to follow the 10-year Treasury note. Mortgages are considered riskier and tend to be slightly higher than the 10-year bond. Even if the 10-year Treasury yield were to fall to the same level as the federal funds rate, it would be highly unlikely that mortgage rates would follow.

With this in mind, we could still see another drop in mortgage rates. Our dedicated team of mortgage professionals are constantly monitoring the market to ensure we are always delivering the best services and products available in our market.

Should you have any questions, please reach out to your loan officer, or contact us at (636) 940-5555.