At its May 2022 meeting, the Federal Reserve did what many experts predicted it would do: increase the Fed funds rate – the amount banks pay to borrow money from each other overnight – another half point from the previous quarter point increase it instituted in March.
What does the higher Fed funds rate mean to mortgage rates? While the Federal Reserve technically doesn’t determine those rates, its actions do have an effect on home loan pricing. With that in mind, the mortgage market has already adjusted for this probability, so this latest increase 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.
On the upside, there are steps you can take to still 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 more rate hikes are expected from the Fed later this year in an attempt to rein in inflation.
Something else to keep in mind: unlike the Fed rate, mortgage rates change daily and sometimes hourly. The best way to navigate interest rates on home loans is to speak with a Homeowners Licensed Mortgage Professional about current market conditions. As always, 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.