How interest rates work

If you have wondered why the Federal Reverse cuts the interest rates and the rates for you go up, I hope to explain. People get in touch with me saying it is now a better time. No September was. Lenders will primarily discount rates before the actual Fed cut. Other people will say” well I keep hearing amounts in the 4s. Think of that as what mortgage lenders, credit cards, car loans, etc. borrow the money at this rate and add a small profit to it. Unfortunately, in the Reverse Mortgage industry higher rates mean less proceedings! We also don’t see the rates coming down from the low 6’s until 2025. I do keep a list of people who are waiting, but I will know a week or two before the public of a rate drop. If you want to be notified on time or before filling out one of my forms or send me an email and I’ll be happy to add you to the list. The 10YR CMT is up slightly this week, with about a 2-bps bump in the 10YR CMT for next week. This will RESULT IN LOWER PRINCIPAL LIMITS and BENEFIT AMOUNTS next week!

The 10YR CMT currently sits at 4.30% for this week, and we will see an increase of around 2 bps in the Expected Rate next week!  This will have a NEGATIVE IMPACT on the Expected Rate and will result in LOWER Principal Limits for next week!! (Note: A 1 bps bump would have had NO IMPACT on Benefit Amounts next week, so if the 10YR CMT closes at 4.27% or below today we will NOT see an increase in the rates next week!)

Lots of important news this week, with the election results and the FED Open Market Committee meeting yesterday! By now, everyone knows that President-Elect Trump will be back in the Oval Office next year and the Republicans will also have control of the Senate, with a good chance of control of the House as well, as results there are finalized in the coming weeks. And the FED did announce yesterday another 25bps cut to the FED Funds rate. All this news caused the 10YR CMT to spike the day after the election but came back down yesterday after the FED announcement!

Over the past few months, the election of President Trump has been closely related to a boost in economic growth in the short-term, but leading to longer-term increases in inflation, government debt and interest rates based on proposed economic policies of the incoming President. The time for the impact of the election may be determined based on which campaign promises will be implemented and over what time.

The FED’s announcement of a 25-bps rate cut yesterday came with comments that they believe its goals of achieving max employment and inflation near 2% are in balance. The markets are pricing in expectations for another 75bps of rate cuts through 2025. Analysts expect the pace of cuts to slow as the FED looks to achieve a soft landing for the economy by reducing borrowing costs, which would be positive for future economic growth. A cooling labor market also tends to lead to slower wage growth which helps to ease inflation concerns.

All this news will be digested by the markets in the coming weeks and months and will help in determining the direction of interest rates, the stock market and the overall economy as we move into next year!

This week, the 10YR CMT Index is 4.30%. Here is what 10YR CMT has done this week, so we will see a slight increase in the 10YR CMT for next week. This increase WILL HAVE A NEGATIVE IMPACT on Principal Limits!