Edan Gelt - Minute of Mortgage - Fed Rate Increase

As anticipated, the Federal Reserve raised the Fed Funds Rate again in November by .75 basis points. The purpose is to slow down borrowing, which in turn slows down spending and ultimately the economy - all with the intent of curbing inflation. Although this increase was expected, agents and clients still want to know about the impact this may have on mortgage rates.

Interestingly, rates on 30-year fixed mortgages are not tied directly and therefore do not follow in step to the Fed’s benchmark rate.

Instead, they tend to track movement in U.S. treasury bonds, with the most common being the 10 year and, more directly, mortgage backed securities. Treasury bonds and mortgage backed securities are bought and sold by individual, corporate and foreign investors and are subject to the same market movements seen in the stock market.

Since investors have been anticipating the Fed’s increase, there has been a larger spread between the 10-year treasury and 30-year mortgage rate – meaning the market already priced in the Federal Reserve’s rate hike. As a result we will likely not see an immediate spike to mortgage rates as we saw after the last hike.

All mortgages are not the same and some rates will be impacted because they are tied more closely to the Fed Funds Rate. These include home equity lines of credit, credit cards and other products that are tied to shorter term, variable rates.

Now more than ever, education and consultation for prospective buyers and sellers is needed to counteract headlines and emotions. Purchasing now with a higher interest rate isn’t as risky as one might think as the rates are not expected to head down anytime soon. If they do refinance. Otherwise if you wait years, the amount of interest paid now will likely not equal the amount the property value increases. Even in slow times, we still see an increase of 5-10% in property values.

For more information about the right financing options for your clients, getting buyers pre approved, or locking in a rate now before your clients even identify their dream home – reach out to me to be introduced to a Key Mortgage loan officer.