When it comes to buying a home, one of the biggest concerns for buyers is their interest rate on mortgages. The Federal Reserve, or “The Fed,” recently announced its decision to raise the federal funds rate by 0.25% this month. So how does this move affect your mortgage? We’ll help you understand the Fed’s decision and what it means for potential home buyers.
When the Federal Reserve talks about raising interest rates, it is referring to the federal funds rate, which is the rate at which banks borrow money from each other. The federal funds rate, along with other economic factors, affect the interest rate of a bunch of products provided by banks, including short-term loans and mortgages. When the Fed raises the federal funds rate, it’s a sign that the economy is steadily improving.
The Fed does not have the direct ability to set mortgage rates, but its policies do have an impact on how these rates are determined. Typically, when short-term mortgage rates go up, so do long-term rates like mortgages. However, there have been instances in the past where short-term rates go up and mortgage rates go down. Lenders examine tons of factors when it comes to offering mortgage rates to buyers, and the federal funds rate is only one part of the equation.
While we can’t predict exactly how this increase will affect mortgage rates, we know it’s a good idea to lock in a low rate now before they have a chance to go up. If you’re thinking about buying a home this spring or summer, we recommend getting in touch with a trusted local lender sooner than later to check out rates. Want to know what’s currently for sale in the Austin area? Start by browsing all Austin homes for sale or contact us to start working with one of our expert agents.