The Federal Reserve acted again to keep the economy on track by cutting interest rates by 0.75 percent. However, homebuyers may not see a drop in mortgage rates any time soon.

Despite the best efforts of the Fed, mortgage rates can continue to rise even as key interest rates come down. Inflation, or the fear of inflation, can keep mortgage rates high as investors demand higher annual returns. The rising cost of oil and a weak dollar have many investors worried that inflation could soon become a major issue in the economy.

The Fed started cutting rates in September, when the interest rate stood at 5.25 percent. After this last round of cuts, the interest rate now stands at 2.25 percent. Rates for 30-year fixed rate mortgages are generally about 2 percent higher than the Fed rate. However, buyers are now starting to see mortgage rates as much as 4 percent higher than the Fed rate.

A quick comparison of rates in the Chicago region for a $200,000 mortgage shows rates between 5.92 percent and 6.30 percent for a 30-year fixed loan. Nationally, mortgage rates fell from a high of 6.70 percent in September to a low of 5.76 percent in January. However, even as the Fed continues to cut interest rates, mortgage rates rose to an average of 5.92 percent nationwide in February.

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[tags] Chicago Mortgage Rates, Chicago Real Estate, Chicago Condos for Sale [/tags]

This entry was posted on Sunday, March 23rd, 2008 at 11:15 pm and is filed under Market Update.