As you know, the Federal Reserve increased its benchmark interest rate last month by .25%. But what does this mean for home loan rates? .....
Last month’s rate change was the first increase by the Fed in over nine years!
Most consumers have a misconception that this immediately increases mortgage rates. In fact, the exact opposite is true! That’s because the Fed changes affect the Discount Rate and Fed Funds Rate, which is very different from mortgage rates. A mortgage rate can be in effect for 30-years, a rate that is set by the Fed can change day-to-day.
A closer look at historical moves by the Fed shows that its rate cuts often increase mortgage rates in the short term, while its rate hikes often decrease mortgage rates in the short term.
So ultimately, new home loans in the short term will NOT see immediate increases in rates due to the Fed rate hike last month.
However, the Fed’s move does give a general indication of the overall markets and economy, meaning the trend to come will be elevated interest rate levels (see the chart below - click on image to enlarge).
HOW YOU CAN USE THIS:
Feel free to contact us if you have any questions regarding interest rates...we’re here to help!!
- This is a great opportunity to educate clients on the reality of Fed rate changes.
- Understand the true indicator of mortgage rates (not Fed moves!). Click here for a previous article we wrote that explains what mortgage rates are really based on.
Feel free to contact us if you have any questions regarding interest rates...we’re here to help!!