How does the FED affects mortgage rates?
The news this year has been full of references to The Federal Reserve ("The Fed") and how it has been raising interest rates. But, how does this affect you and your mortgage. The Fed is in control of US monetary policy and very short term interest rates - Not Mortgage Interest Rates. Their primary job is to keep inflation in check and have goal to keep long term inflation around 2%. Basically, if the economy gets "too hot", they will raise short term rates to slow it down or "put on the brakes".
Again, the Fed does not actually set mortgage interest rates. They set the Federal Funds rate which does affect variable loans like HELOCs and ARMs. When the Fed changes the rate, the underlying indexes for these loans change as well (i.e. Prime Rate or 1 Year Libor). In this market, the trend has been upward and all indications are that another .50 point in rate hikes are predicted for later this year.
Rising rates mean more expensive monthly payments because it is more expensive to borrow. As a result, home prices may be driven down because sellers may need to drop their prices to attract buyers. Buyers must also consider the other cost associated with being homeowner and other debts you may take on. As always look at the big picture before making a move and speak to a mortgage professional.
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