The Federal Reserve ("the Fed") cut key interest rates another half of a percent today. I've had quite a few buyers and homeowners ask me if that means mortgage rates will drop some more.

The answer is a resounding "It depends".

The actual Fed Funds Rate is the interest rate at which depository institutions lend balances at the Federal Reserve to other depository institutions overnight. However, mortgage rates aren't generally tied to the Feds Fund Rate. If you have credit cards or loans that are tied to the prime rate, then you could see a change in those rates (though this depends on your actual loan agreement).

Mortgage rates are affected by the bond market, which tends to try and anticipate what the Fed is going to do, as opposed to being directly tied to the Fed's actions. The stability of the overall economy has a lot more to do with mortgage rates than what the Fed does. If the bond market thinks that inflation is under control, then rates should go down. If the bond market thinks the Fed is off it's rocker, then rates would likely go up.

Quite often, the rates do both...drop initially and then rise. Or, they do the opposite. There's just no knowing for sure what the bond-buyers and sellers are going to do. Some say that the cuts could cause inflation fears and that would send the long-term rates higher.

The best advice for those wishing to refinance or those planning to buy is to know your goals and look at the big picture. Worrying over an eigth of a percent here and there can drive you nuts and you'll never move off of dead center.

Stay tuned...

(C) Susan Pruden.