How has the Federal Reserve changes affect mortgages?
The economy, interest rates, and mortgages are all deeply connected. When one changes, the others are sure to change as well. The Federal Reserve met recently to increase the rates of interest for banks borrowing money from them. Though this doesn’t directly affect mortgage rates, there is a strong derivative effect. Today we’re going to be taking a closer look at this correlation and what it means for the future of mortgage lending.
Why does the Federal Reserve change rates?
The economy is the dictator for rate changes in the Federal Reserve. When rates are low, people feel more inclined to borrow money and thus, stimulate the economy. However, when rates go up, the opposite occurs. Though the interest rates dictated by the Federal Reserve are still relatively low, the rates have been increased. At present, according to Bankrate, the rate of a 30-year fixed mortgage is at 3.46%. According to Investopedia, “One of the tools it (the Federal Reserve) uses to conduct monetary policy is setting a target for the federal funds rate. This is the short-term interest rate at which U.S financial institutions (such as banks, credit unions, and others in the Federal Reserve system) lend money to each other overnight in order to meet mandated reserve levels. Each borrowing and lending bank negotiates the interest rate individually. Together, the average of all these rates make up the federal funds rate.” Another thing that the Federal Reserve will do to impact the economy is to change bank reserve requirements and the conditions under which banks can borrow and lend.
What does this mean for mortgage rates going forward?
It can be projected that an increase in the federal funds rate may cause an increase in the interest rates of mortgages. After all, if the borrowing rate for banks goes up, they will be sure to pass those costs along to their customers. Interest rates from mortgage lenders are dictated by the projection of where they expect interest rates and economic inflations to be down the line. As the Federal Reserve puts a collar on inflation, they will cause banks to stop borrowing from each other which will lead to higher rates of interest for their customers. It’s something to keep in mind when considering where to go for your home loans and when facing your mortgage.
Are you ready to invest in the home of your dreams?
Are you ready to invest in the home of your dreams? Don’t let the Federal Reserve’s rate increase stop you. We at Caliver Beach are ready to help you find the right loan for your situation. Our team of highly qualified experts have hundreds of options ready for you to invest in the home of your dreams. Contact us today! You can also follow us on Facebook, Twitter, Google+, Pinterest, and Youtube!