One of the main concerns when refinancing or purchasing a home is what your client’s interest rate is going to be, because the rate affects disposable income and liability. The mortgage rate determines the outflow of money to a bank or other lending entities. With the move down in rates here in the late summer and early autumn, Orion’s brokers report that mortgage activity has increased. But what is happening on a bigger scale for you to explain to your clients?

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The economy ,interest rates and mortgage rates work in harmony together, with the U.S. Federal Reserve having an impact on each of these as the Federal Reserve’s policies are based on the economic situation in the U.S. The Federal Open Market Committee (FOMC) assesses the national economic well-being based upon research and data analysis and the information provided helps the Fed decide whether or not to raise rates.

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As we saw in2020 and 2021, when the Federal Reserve keeps the federal funds rate low, it in turn decreases other economic interest rates making borrowing cheap for people and businesses. Brokers know that this has a positive impact on the economy as consumers are more inclined to spend and borrow money.

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As we saw recently, the change in the fed funds rate is conveyed through the Open Market Operations (OMOs). If the Federal Reserve wants to increase the monetary supply in the economy, then it buys bonds, giving out cash in exchange. When this happens, bond prices increase, making borrowing cheaper, bringing the rate down. If the Fed sells bonds, then it decreases bond prices, making borrowing more expensive, resulting in a rise in interest rates.

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Orion’s brokers also know that bond prices and interest have an inverse relationship. Treasury yields also impact fixed mortgage rates and as the yields rise, these products must offer higher returns in order to draw investors. If yields decline, mortgage rates begin to drop as well. To try and get the best rate, it would be wise to track the direction the fixed mortgage rate is headed, look for the Federal Reserve’s economic statement, and the pattern of the yield curve.

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We don’t expect our broker clients to know the nitty gritty of what is going on in the economy. But Orion’s AEs and capital markets staff are here are for!

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