At its July 2022 meeting, the Federal Reserve raised the Fed funds rate – the amount banks pay to borrow money from each other overnight – by three quarters of a point, following an equal increase it instituted last month.
Some economists predicted a full-point increase at this meeting after the consumer price index hit a new four-decade high of 9.1% in June. But ultimately the Fed backed off of that measure for the time being as it tries to rein in inflation without bringing about a recession.
What does the higher Fed funds rate mean to mortgage rates?
As we pointed out in previous blogs about Fed rate increases in March, May, and June, the Federal Reserve technically doesn’t determine mortgage rates. However, its actions do have an effect on home loan pricing.
Given all the predictions of Fed rate hikes this year and how they’ve mostly come true, the mortgage market has once again already adjusted for this latest increase and it is essentially reflected in current mortgage rates. Also, it’s important to remember that mortgage rates are based on longer-term bonds, while the Fed funds rate applies to loans that last less than a day.
As always, there are still steps you can take to get a great rate when rates are rising, including exploring the possibility of a long-term lock of up to 270 days in advance of your closing date. This is an especially valuable option as there could be more Fed rate hikes later this year if this latest attempt to address inflation isn’t as effective as intended.
Don’t forget that unlike the Fed rate, mortgage rates change daily and sometimes hourly – and they still occasionally go down, despite the direction of the Fed rate. The best way to navigate interest rates on home loans is to speak with a Homeowners Licensed Mortgage Professional about current market conditions. We’re here to help you understand the rates that are available to you and get the best possible pricing on your next home loan.