The Federal Reserve is widely expected to drop the fed funds rate another half-percent when the FOMC meets today. Every time the expectation is there for the rate to drop, clients decide to wait, incorrectly assuming that they will get a lower interest rate.

Mortgage rates are based on what is happening with mortgage bonds, not on what is happening with the fed funds rate. Sometimes a drop in mortgage interest rates will follow. Sometimes it may snow in Las Vegas the following day. Neither of these occurrences can be directly attributed to the drop in the fed funds rate.

When the FOMC dropped the rate by .75 percent, nine days ago, mortgage rates happened to fall dramatically soon after the announcement. I begged my client, Ted, to let me instruct his lender to lock his loan, saving him nearly a full point. Ted insisted he wanted to wait until the Fed was scheduled to meet again today, confident he would get an even lower rate. While I explained that the fed funds rate doesn't determine mortgage rates, Ted wouldn't budge. The following day, rates had jumped back up by .5 percent and he lost the opportunity to get an incredible rate.

My client Jenny, on the other hand, took my advice. Jenny locked her rate that day, and once she closes escrow she will save money every month for the life of her mortgage. She and her husband are already picking out the new toys they'll buy with the savings!

The only advice I would give is to watch rates daily if you are planning to use a mortgage to purchase your new home. If you are working with a loan officer already, make sure he or she is actively managing your mortgage, so that you will get a call if rates drop or programs change.

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