What Does the Quarter-point Rise in the Federal Funds Rate Mean to You?

First, what it does NOT mean is that you’re likely to see an immediate increase in mortgage loan rates.

Mortgage rates are tied to the yield on mortgage-backed securities, which are tied to the yield on the U.S. 10-year Treasury rates. These yields could end up higher or lower in the near future, but it won’t be because the Fed raised the target federal funds rate.

Right now, the majority of home mortgage loans are backed by Fannie Mae, Freddie Mac, and Ginnie Mae. These loans are sold to the Federal Reserve in Mortgage Backed Securities. This has been going on since the financial markets crashed in 2008.

The Fed is not now using “new money” to purchase these securities, but is rolling-over all the income (estimated at $24-$26 Billion per month) into new Mortgage Backed Securities.

What it does mean is that the rate on your existing ARM (Adjustable Rate Mortgage) is likely to increase. Now would be a very wise time to refinance into a fixed rate mortgage.

It also means that auto loans and credit card interest rates are likely to increase.

When it comes to cars, don’t panic. A ¼% rate increase would add only about $3 per month to the payment on a $25,000 car loan.

When it comes to credit cards – now is a good time to pay them off or to take advantage of the “zero rate” or low rate balance transfers you’re offered. Then pay them off.

Does it mean anything to your savings accounts? Probably not. No one expects the banks to share this quarter-percent hike.

Since home mortgage rates could potentially rise in the near future, it does mean that this is a good time to get serious if you’re considering a home purchase.

Rates in the 4% range have become “normal” over the past few years and young buyers especially panic at the idea of paying more.

However, these rates aren’t historically normal. For many decades rates ranged between 8% and 12%, and in the early 1980’s were at 18%. And yes, people still purchased homes. They were simply more conservative in what they paid for the homes they purchased.

By the late 80’s it was considered a triumph to get a home loan at 10% – without paying points.

So, while no potential home buyer wants home mortgage rates to rise, it can probably be considered inevitable at some point in the future.

Do you have an adjustable rate mortgage to refinance before the rates to up? Or, are you considering a home purchase? If so, Homewood Mortgage, the Mike Clover Group will be pleased to help you accomplish your goals. We offer fast closings, along with the best rates and the lowest closing costs you’ll find anywhere. You can reach us at 469.621.8484 or you can apply on line at www.mikeclover.com.

Mike Clover

Mortgage Banker

Homewood Mortgage,LLC

O: 469.621.8484

C: 469.438.5587

F: 972.767.4370

18170 Dallas Parkway

Ste. 304

Dallas, TX 75287

NMLS# 23477