What Does the Federal Reserve Rate Have to Do with My San Diego Home Purchase?

    As many of you know, the Federal Reserve increased the Fed funds rate by 0.25% this past December. Today, I’d like to debunk the misinformation out there about consumer mortgage rates and how they are impacted by the Fed Funds rate.

    The Federal Reserve does NOT make mortgage rates; however, it does exert influence on them. To make a complex correlation more understandable, let’s just say that mortgage rates are made on wall street, largely based on the price of mortgage backed securities.  In general, when there is inflation present in the economy, the value of a mortgage bond drops, which leads to an increase in consumer mortgage interest rates.

    But let’s get back to where we started.  At the moment, the .25% increase in the Fed funds rate is having little to no impact on current mortgage rates.  However, if the Federal Reserve continues to increase the short terms funds rate in an effort to stave off inflation, then it is likely we will see consumer mortgage rates rise later this year.

    It is important to note that mortgage rates have been historically low for over 10 years now, so if you’re thinking about buying soon, it’s vital to have a great Realtor and lender to help set your goals. If you have any questions or concerns, please contact me by phone or email!

    Trackback from your site.

    Leave a Reply