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What is going on with Rates?

Recently, the Federal Prime Rate dropped by .50%. This rate reduction will impact the rate customers pay on their variable rate Home Equity Credit Lines and other short term money.

What about fixed rate loans?

I am sure that you are getting questions about fixed rates and when they are going to drop - after all, the prime rate dropped and it only makes sense that fixed rates drop as well, right?   Unfortunately, it is not that simple .  Let me try to explain.

Fixed rate loans are not funded using a "prime rate" source of funds.  The fixed rate source of funds is independent of the prime rate, and in recent days, has actually INCREASED a bit, causing additional pressures on the cost that banks pay for loan funds.

In addition, over the last year, we have been operating in an inverted rate curve.  This means that fixed rate loans, which have been historically 1% higher than the variable rates, have actually been LOWER than the variable rates.  

In a typical market, customers decide to borrower using a variable rate to save on the actual interest rate charged on the loan as compared to a fixed rate product. Currently that exact opposite is true for mortgage loan rates.  For several months, due to competitive and production based pressures, fixed rates have been kept lower than the desired rate that banks need to exceed interest income goals.  The recent prime rate decrease will actually be correcting the "inverted rate curve" environment.  

This inverted rate curve is the same for most financial institutions. Most banks are feeling the same income pressures and have positioned their rates accordingly.  Huntington's rates are currently among the best in the area, and in many cases, the rates for the "ideal client" are much better than most of the major banks.  Huntington continues to monitor the rates "daily" and every month, surveys the competition to assure that they are positioned well in the market.  To review the competitor survey, go to the Home Lending website on Huntington.com and you will be able to see the rates for most of the major banks in the region.  

For the next month, there is no forecast for any changes to the rates unless the cost of funds continues to rise.  Please call me with any questions.

Lee Miller, Vice President/Mortgage Loan Officer
Huntington Mortgage Group

Posted: Tuesday, October 09, 2007 3:30 PM by Jon Becker


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