You may have heard the Federal Reserve increased the Fed Funds rate by 0.25% this week, to a rate between 1.25% – 1.50%.
Does this mean mortgage rates will go up? Not necessarily.
The Fed Funds rate is the rate by which money is borrowed from the Federal Reserve.
Mortgage rates, however, are based on the trading of mortgage-backed securities. Mortgage rates are indirectly affected by actions of the Fed.
Increases and decreases in the Fed Funds rate are factors to be considered in the valuation of mortgage-backed securities. So, when the Fed increases the rate, the mortgage rates can go up or down. In fact, lately, mortgage rates have trended down a little after Fed rate increases.
To get a better indication on whether mortgage rates will change, you may want to follow the 10-year bond. As the bond rate goes up or down, the mortgage rates tend to follow.
Here is a link where you can track the 10-year bond:
On the other hand, the prime rate, which is a benchmark rate for home equity lines of credit, is directly affected by increases in the Fed Funds rate. The prime rate is typically a factor of 3%
over the Fed Funds rate, so many banks are now quoting a prime rate of 4.5%. If you have a line of credit, your rate may have increased by 0.25%.
If you are rate watching and want to discuss, contact us and we’ll help you.
We offer a variety product services, ask us how we can assist you today:
Counsel Mortgage Group®, LLC
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John Rapasky is the President of the Counsel Mortgage Group, LLC. Copyright © 2017 Counsel Mortgage Group®, LLC.