Want a low mortgage rate? Thanks to the Fed, you may have to go faster now

Want a low mortgage rate? Thanks to the Fed, you may have to go faster now

President Jerome Powell and his colleagues at the Federal Reserve have released new economic projections that have a lot to say about the future of mortgage rates in America.

It turns out that mortgage rates, which have been sitting at historically low levels during most of the pandemic, could increase sooner than expected, increasing the cost of borrowing for buyers and homeowners.

Here’s why – and, more importantly, when – rates might start to climb.

Fed plans to raise interest rates faster

Facade on the Federal Reserve Building in Washington DC

Paul Brady Photography / Shutterstock

In a two-day meeting that ended on Wednesday, officials left the Fed’s key interest rate, known as the federal funds rate, close to zero and kept other policies of the era intact. COVID.

But the sooner the central bank believes the economy is healthy enough to function without its help, the sooner mortgage rates will rise. And, Fed policymakers are seeing good economic news around the corner:

  • They expect the economy to grow up to 6.3% this year and up to 4.9% in 2022.

  • They predict that the unemployment rate will fall to between 3% and 4% next year.

  • They indicate that inflation could rise to 4.4% this year before falling back to between 1.7% and 3% in 2022.

The Fed has said that once employment improves and inflation stabilizes around 2%, it will feel comfortable raising the federal funds rate, which dictates the prime rate and variable mortgage rates.

Given the other projections, it should come as no surprise that the Fed now expects to raise rates at a faster rate. Half of the Fed’s political panel now believe the federal funds rate will rise in 2022.

Just a few months ago, Fed officials didn’t expect to start raising rates again until 2024. Their new projections indicate there could be one rate hike next year and three more in 2023. .

Why mortgage rates will rise

United States Treasury Savings Bonds

larry1235 / Shutterstock

As the Fed raises rates, today’s low mortgage rates will be history. Variable rate home loan rates are directly affected by what the Fed is doing, so they will certainly go up, but fixed rate mortgage rates are also expected to rise.

And here’s why: In addition to keeping the federal funds rate low, the Fed has controlled fixed mortgage rates by buying $ 80 billion in Treasury bonds and $ 40 billion in mortgage-backed securities each month for most of the pandemic.

These purchases, the Fed says, contribute to “promoting the proper functioning of the market and accommodating financial conditions, thus supporting the flow of credit to households and businesses”.

The Fed has not gone so far as to announce when it will start cutting back on its spending frenzy, but policymakers said on Wednesday that the country’s ongoing economic rebound is prompting them to consider cutting back on their purchases.

Corey Burr, senior vice president of TTR Sotheby’s International Realty in Washington, DC, said if a reduction in Fed bond purchases translated into a higher interest rate on the 10-year Treasury note, this could trigger a corresponding rise in mortgage rates.

What to do before mortgage rates start to rise

Happy young bank worker watching male client of African descent signing mortgage application

fizkes / Shutterstock

If the central bank says its federal funds rate could rise next year and its bond buying program is about to be cut – steps that will raise mortgage rates – it might be time of lock in a low ratewhether you are a home buyer or homeowner considering cost-effective refinancing of an existing mortgage.

Whatever type of home loan you are looking for, be sure to compare the offers of at least five different lenders. Evaluating multiple offers is a proven strategy for finding the best mortgage for your budget.

Before you apply for your loan, do a quick free overview of your credit score. Borrowers with the highest credit scores are usually offered the lowest rates, so you may need to work on improving your score before you start approaching lenders.

If a mountain of stubborn high interest debt is preventing you from finding an affordable mortgage rate, you may want to consolidate those debts into one low interest debt consolidation loan. You will pay less interest, eliminate your debt sooner and free up much-needed cash flow.

This article provides information only and should not be construed as advice. It is provided without warranty of any kind.

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