What does Fed Rate Increase Mean for Mortgage Rates? Not much now.
This week saw the first rate increase by the Federal Reserve, as they raised their key interest rate by a quarter point for the first time since 2018. The US Federal Reserve central bank sets the Fed Funds Rate, which is the rate banks borrow and lend to each other overnight. Why they raised the rate is due to several factors, likely the war in Ukraine, higher than desired inflation, and managing the overall economy. Comments from the Fed regarding the rate increase and the possibility of future increases indicate hope those rate increases will relieve inflation pressures without cooling the economy and increasing unemployment too much.
What does it mean for consumers?
Not much. Better yet, not any more than it did yesterday. The stock and bond markets anticipated this move by the Fed for quite some time, resulting in rising consumer interest rates since the start of 2022. Mortgage rates have risen nearly a full percentage point in less than 3 months. Consumers can expect credit card rates to potentially increase as well. Current borrowers should pay special attention if they have a Home Equity Line of Credit (HELOC) or Adjustable-Rate Mortgages (ARMs). These loans may have temporary fixed rates that are due to adjust which may be affected by the increase in mortgage rates. How much depends on the terms of the NOTE when your loan was consummated.
Do yourself a favor if you have an ARM or HELOC, check the terms of your loan to see when your rate is scheduled to adjust and what determines the adjusted rate. If you’re not sure, call E5 Home Loans to help review your NOTE and figure it out.
What does the future hold?
We do have a magic 8-ball, but nothing is certain. When consulted, it said, “Reply hazy, try again.” The Fed has been alluding to raising rates for a while and they just followed through on that for the first time. Will that trend continue? Our magic 8-ball now says “Signs point to yes.”
CNN reported “Wednesday’s policy update also included a new set of projections from the central bank, showing that Fed officials expect a median federal funds rate of 1.9% by the end of this year, before raising it to 2.8% in 2023. But the Fed could also raise rates faster if inflation does not moderate. The central bank has six meetings left this year. The next one is scheduled for May 3-4.” The current Fed funds rate sits at 0.50%.
In the meantime, homebuyers still need to borrow money to buy homes. Homeowner equity has increased significantly. There are many options to protect against market conditions. A cash-out refinance can consolidate higher-interest credit card debt, or improve the home you already have. 5-10 Year ARMs can be an alternative for homebuyers to keep monthly mortgage payments affordable while the market shakes out.
E5 Home Loans works with multiple lenders to shop for our borrowers to ensure they find the best product for their situation at the most competitive rate. Call with any questions or to get a second opinion.