Earlier this week, the Federal Reserve Board announced its decision to reduce its bond-buying program. So how does this affect mortgage rates? Each time the Federal Reserve makes an announcement, the markets respond. Whether the shift is small or large, clients often want to know if the fed announcement will impact mortgage rates. More importantly, homeowners want to know how the Fed announcement will affect their mortgage specifically.
How the Recent Fed Announcement Impacts Mortgage Rates
In broad terms, the Fed’s announcement this week is expected to put pressure on mortgage rates. But the increase will most likely happen slowly, leaving fixed-rate mortgages in the low range for a while.
More importantly, the Fed’s announcement addressed the bond-buying program but did not announce a change to the federal funds rate. The federal funds rate is the interest rate that typically has a direct impact on mortgage rates.
This is good news for homeowners.
However, if and when the Fed decides to increase the federal funds rate, it will directly impact mortgages. So it’s wise to understand how it works and how you can prepare.
What happens when the Federal Reserve increases the federal funds rate?
When the Fed makes a decision to shift the federal funds rate, it directly affects the rates on adjustable-rate mortgages, HELOCs and home equity loans.
Adjustable-rate home loans have variable interest rates. This means that the rate will fluctuate, rising or falling based on the fed funds rate. If the fed funds rate goes up, your rate will go up, and your mortgage payment will go up. There are different caps for each loan, which limit how much your mortgage payment can increase. Talk to your mortgage broker to find out if refinancing your home loan can save you money and protect your mortgage payment.
Home Equity Loans and HELOCs (Home Equity Line of Credit)
Most home equity loans and HELOCs are tied to the prime rate, which is typically 2-3 percentage points higher than the fed funds rate. If the fed funds rate goes up, this causes the prime rate to increase, and interest rates for HELOCs and home equity loans will rise in tandem.
Worth noting, most home equity loans are fixed-rate loans, which means your payment won’t change (still, the interest rate is higher than fixed-rate mortgages). On the other hand, HELOCs have a flexible rate that is directly impacted by the fed funds rate. This means your HELOC rate can rise at any point and with a higher rate, you’ll have a higher payment.
How to Refinance Your Mortgage to a Fixed-Rate Home Loan
Working with a qualified mortgage broker can help you get your best mortgage. Since mortgage brokers work with multiple lenders, an experienced broker can shop for the best rate and the best refinance loan based on your qualifications. What’s more, a mortgage broker can explain refinancing options that you might not know about and get you a mortgage that can save you money.
- Step 1: Ask us questions and tell us about your goals.
- Step 2: We’ll analyze the market and lock in your best mortgage rate.
- Step 3: Next, it’s time to review your new refinancing options.
- Step 4: Gather the final documentation for underwriting.
- Step 5: Verify the value of your home with a home appraisal.
- Final Step: Close on your new home loan with a low fixed-rate payment!
An experienced mortgage broker will discuss your refinancing options, get the lowest rate possible, and help you overcome any obstacles that may come up.
If you have a home with an adjustable-rate mortgage or a home loan linked to the equity in your home, it may be a wise move to refinance your home with a fixed-rate mortgage. Mortgage rates for fixed-rate mortgages are still relatively low compared to historical averages.
Refinancing with a fixed-rate mortgage secures a fixed monthly payment for the life of your loan, no matter how the market shifts. No matter what the next Fed announcement is, you’ll have a steady mortgage with a predictable monthly payment you can afford.
We work with clients at every stage of homeownership and often guide our clients through mortgage refinances, home equity loans, reverse mortgages and everything in between. Your home is one of your greatest assets, and we can work with you to gain financial freedom. Our goal is to get you the best mortgage and save you money along the way. Give us a call to get started.