With all the recent Fed meetings and rate cuts of the Federal Funds Rates, many people are under the impression that the prime rate decreases will affect current mortgage rates. Unfortunately this is a very common misconception and Prime Rate has ZERO direct affect on mortgage rates. Auburn Mortgage of Hiram, GA 30141 is presenting a small article that explains how mortgage rates are truly determined, what Prime Rate actually affects and a chart showing the comparison of the three.

Yields, meaning profit as a percentage, on 10 year and 30 year Treasury Bonds are typically used to set long-term mortgage rates. Loans with short initial terms (1-, 3-, and 5- year ARMs, e.g.) are pegged to shorter-term securities. So when bond yields drop, typically, conventional mortgage rates fall as well (see historical graph below). Conversely, when bond yields rise, so do mortgage rates. Why? If a lender chooses to sell your mortgage loan to an investor, the lender will likely use Treasury yields as a benchmark for value, so in turn mortgage lenders also use this as a benchmark to set their mortgage rates daily.

As you will see from the chart below, mortgage rates do not really follow the prime rate in any specific trend or fashion, however as the graph shows, long term bonds and mortgage rates follow each other almost identically.

Our goal is to help you understand all facets of the mortgage and real estate process so you feel comfortable with your investment decisions and the entire transaction. Call the office or visit the site to find out about our "Mortgage and Real Estate Horror Stories" contest for your chance to win some Atlanta Thrashers or Atlanta Hawks tickets. Contest ends 3/31/08. We want to make sure you don't end up in the contest after you work with us.