Why This Fed Rate Increase Shouldn’t Change Your Plans to Buy or Sell Real Estate

The Fed just increased it’s benchmark interest rate. Like most people, you’re probably wondering just what this means if you’re thinking about buying or selling a home. Or getting a new mortgage. We turned to one of our mortgage partners, Paul Stella of American Pacific Mortgage, to get some more information to share…

rates_thumb.jpgThis is the first time the Fed has raised it’s benchmark interest rate in almost a decade. After holding the rate near zero to support the economic recovery, the Fed upped the target rate range to between 0.25 to 0.5 percent.

While a “rate hike” may sound worrisome, it’s important to understand what this really means.

The Fed Funds Rate is the rate at which banks lend money to each other overnight. It is not directly tied to long-term rates on consumer products like purchase or refinance home loans.

This means that consumers should not expect an increase in home loan rates as a direct result of the Fed’s decision.

Instead, home loan rates are tied to Mortgage Backed Securities, which are a type of Bond. Many factors impact the performance of both Stocks and Bonds, and will play a role in the direction of home loan rates as we move into the new year.

For example, an improving economy, higher wages and higher inflation could all cause home loan rates to rise. However, if our economy falters, or if there is continued uncertainty and turmoil here or overseas, investors could seek out “safer” investments like Bonds, which could help keep home loan rates low.

Where the increase in the Fed rate will make some difference is on short-term rates. Credit card rates, car loan rates, home equity loan rates – loans that generally have shorter terms – this is where you’re likely to see some rate increases.

Remember, the first step in the home buying process is to get pre-approved from a reputable mortgage professional. Paul Stella is a great option because he is experienced, knowledgeable, professional and most of all, he cares about his clients.  He can be reached at 415-857-5625 or at paul.stella@apmortgage.com. He can help you refinance your existing mortgage as well. Let us know if we can make an introduction for you!

 

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About CarolSawdey

I'm a Broker/Realtor in the San Ramon Valley. A trusted advisor in the local community: We help people buy and sell homes. We counsel them thoroughly. We negotiate to their advantage. We keep their stress to a minimum. And we love what we do!
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