First, who is the Fed and what do they do?
The Federal Reserve Board (the Fed), controls the Fed Fund Rate and the Discount Rate. These are charges for overnight loans from bank to bank or from the Fed to member banks.
You Can’t Keep a Good Thing Down
Ever try to hold a life preserver underwater? It’s hard, isn’t it? It can be equally hard for the Fed to keep Mortgage rates low against a rising tide of market expectation.
The Winds of Change. The Fed’s actions to keep interest rates low have worked for a time, but eventually, market forces will take over. In fact, the market has recently become more influential, and the Fed can do little to counteract the trend.
The Trouble with Targets. The Fed has announced some economic benchmarks, including inflation and unemployment rates, for adjusting the current policies. Now that everyone knows when to expect action, smart investors are operating ahead of the curve.
The Factors. Rate increase triggers include positive economic news and hints of policy change from the Fed. Market influence comes from mortgage bond investors, institutions, and sovereign nations. When these forces act in unison, their influence is greater than the Fed’s alone.
What Can We Do? We can lock in rates for a purchase or refinance before they change. A fixed monthly mortgage payment now can create a sense of stability for decades to come.
Waiting Can Have a Cost. The combination of higher rates and prices can make what’s affordable today out of reach tomorrow.
What does an increase mean for regular people?
• It could cause banks to increase their “prime rates,” which are often used to calculate interest on consumer products like credit cards and home equity lines of credit (HELOCs).
• Mortgage rates are long-term rates and not directly controlled by Fed rate changes. However, mortgage rates are influenced by Fed policy, and rates can rise in anticipation of future Fed action. There are exceptions, yet home loan rates will typically follow overall interest rate trends over time.
Here’s what we know:
With the uncertainty, we’re tracking the changes carefully and am happy to keep you informed whenever you like.
Thank you for allowing us to provide you with updates on industry news. Please reach out if we can answer any questions for you or help with financing or refinancing your home.