After its September 25-26 meeting, the Fed announced an increase to the benchmark Federal Funds Rate by 0.25 percent for the third time this year. The increase, which was expected by investors, brings the new target rate range to between 2 and 2.25 percent.
If you’re wondering what this rate hike means for home loan rates, don’t panic. A rise in home loan rates shouldn’t be expected as a direct result of the Fed’s decision.
This is because the Fed hike is not to all rates but to the Fed Funds Rate, which is the short-term rate at which banks lend money to each other overnight. The Fed Funds Rate is not directly tied to long-term rates on consumer products like purchase or refinance home loans.
In its announcement, the Fed noted that the economy and labor market continue to strengthen and that inflation remains near the Fed’s target of 2 percent. If inflation can stay in check, this could be good news for home loan rates. Inflation reduces the value of fixed investments like Mortgage Bonds, and home loan rates are tied to Mortgage Bonds.
However, continued strong economic news could also benefit Stocks at the expense of Mortgage Bonds and home loan rates if investors move money into Stocks to take advantage of gains. I’ll continue to monitor all these market movements for you.
While home loan rates have ticked higher this year, they remain attractive historically. If you have any questions about whether you can benefit from current home loan rates, please reach out to Universal Lending at anytime.