Everyone has noticed the sluggish economy over the last year and a half. We all have also heard how the Federal Reserve Bank continues to lower interest rates. Knowing this everyone is waiting to refinance or buy their first house at a low interest rate. However, even with the Fed slashing rates to an unprecedented low, home mortgage rates have not declined at the same pace. What is the major reason for this difference? The reason is that the interest rate the Fed is lowering is the short-term interest rate charged to banks. In other words, this is the rate banks pay to borrow money from the Federal Reserve Bank. This rate does impact the home mortgage interest rate but not in a direct relationship. The short-term rate can and usually does affect the economy on a whole which will in turn effect home mortgage rates. This affect is not an immediate effect, it takes time for it to go through the economy.

A better indicator of where home mortgage interest rates are at any given time is the 30-year U.S. Treasury bill. Home Mortgage rates and the Treasury bill are both long-term notes, thus giving a better indication of where the market feels long term interest rates are going. As the Treasury bill will fluctuate on a daily basis as to price and rate in the open market you will see a corresponding move in home interest rates on a weekly basis. This is due to home mortgage interest rates are usually adjusted once a week by banks and other lending institutions

To summarize, when looking to see a trend on where home mortgage interest rates are headed check the 30-year U.S. Treasury bills rate. Don't just assume that because the Federal Reserve Bank has lowered interest rates your neighborhood bank will lower home mortgage interest rates.