Fed Hikes and Mortgage Rates Explained

Fed Hikes and Mortgage Rates Explained

How will the Fed’s recently announced quarter point hike to the Fed Funds Rate affect mortgage rates?  The answer may surprise you.

The Fed Funds Rate is not the same as a mortgage rate because it can change from one day to another, while mortgage rates can be in effect for 30 years.

Mortgage rates are primarily driven by inflation, which erodes the buying power of the fixed return that a mortgage holder receives.  When inflation rises, lenders demand a higher interest rate to offset the more rapid erosion of their buying power.

You probably know that inflation has been rising of late, and as a result, so have mortgage rates.

When the Fed hikes rates, they are trying to slow the economy and curb inflation. If successful in cooling inflation, mortgage rates will decline.  History proves this during rate hike cycles for the past 50 years.

However, the Fed may also reduce its holdings of Mortgage Bonds, which can cause some interest rate volatility.  I’m here to help you navigate through these uncertain times and find you the best opportunities for a purchase or refinance.

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