Bob Taylor Properties, Inc.

Telephone 323-257-1080
5526 N. Figueroa Street
Los Angeles,
California, 90042, USA

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  • As the nation's bank, the Federal Reserve controls short term interest rates by raising or lowering the sum of money in the banking system. Short term rates include the Federal Discount Rate (Rates at which banks borrow money) and the Prime interest rate (rates at which consumers borrow from banks).

    Mortgages are considered a long term rate since home loans are typically for a 15 or 30 year period. Long term rates are influenced only indirectly by the Federal Government.

    In the "second money market", mortgages are sold in "pools" to investors. On any given day, those rates are set by the market. As mortgage-backed-securities are bought by investors, funds are channeled back into the market, so that lenders can make more new mortgage loans.

    The nature of a long term, mortgage-backed security is that the investor buying the security agrees to accept a fixed rate of interest for the life of the investment. For instance: 7% for 30 years; but this means the investor must be confident that a 7% yield won't end up a lousy return over the period if other market interest rates rise.

    That is why a surge in the job market can spook investors; and drive mortgage interest rates up.

    Investors naturally associate stronger economic growth with rising interest rates and potentially rising inflation. Why? Because a greater number of employed Americans means more consumers clamoring for goods and services.

    When the economy shifts to faster growth, investors don't want to own lower yield, long term securities. But if mortgage-back-securities aren't bought by investors, funds for making new loans are depleted. So, to compete with higher, short term yields in a rising market, higher yields on long term mortgage-backed- securities are demanded.

    But, let's keep the current rates in perspective. Rates are still near a generational low. Lenders are offering a wide variety of programs to fit every need. Special community and government programs are available