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  • FED increases Fed Funds Rate rate another 75 basis points.

    Trying to fight inflation, the Federal Reserve raised the overnight money rate another 75 basis points.

    What does this mean for your long-term mortgage?

    Minneapolis, MN: It was no secret the Federal Reserve was probably going to raise the Fed Funds rate today by 75 basis points, and they did. The funds rate (the ‘thing’ that hikes), also known as the overnight rate is what the Fed would charge a big bank to borrow money from them. There is NO direct 1 to 1 correlation to long-term mortgage rates.

    First, understand that what the Fed does is only a small portion of what drives long-term mortgage rates, like the 30-yr fixed. But naturally, when they raise the cost of what banks pay to borrow money, that will be passed onto the consumer, but not 1 to 1.  So a 75 basis point increase, might only move the interest rate to the customer 1/8% (0.125%).

    Next, understand that as this hike was highly expected, lenders weeks ago factored this increase into the rate given to you.  So in theory, they did exactly what was expected, it was already priced in, so there should have been no change today. Only if the Fed did something unexpected today, would the interest rate move because of the hike itself.

    The bigger item that moves the interest rates today is what the Fed says along with the hike.  With the announcement today (Nov 2, 2022), they indicated they will probably slow down the pace of any future increases. The mortgage world liked that news, making for what should have been some improvement (lowering) of mortgage interest rates. But nope…  the 30yr fixed rates moved slightly higher (0.11).

    Remember, what the Fed does is only a portion of what drives mortgage rates, any number of things could change to wipe out any improvement, or makes rates better. The Fed only meets 8 times a year, while all the other things that effect rates can change daily, even multiple times a day.

    So mortgage rates went a hair higher today after the hike, but not necessarily because of it.

    Confused? Hey, it isn’t just you. I follow the markets all day everyday, and it is very hard for professionals to follow along and guess what the markets are going to do.

    Short-Term Money Is Different

    Short-term money, so car loans, credit cards, and home equity lines of credit, typically see an immediate equal increase in the rate.

    Savings Rates

    Saving and money market accounts should go up, meaning you will make more on what you have in your account.  Some banks will raise the APY almost immediately, while most will do so over the next 30-days. Most DO NOT raise what they pay you in an amount equal to the Fed increase.

    The bottom line

    Borrowing money will be more expensive.  Savings rates will be better.

    At lease for the short-term, no one should expect any meaningful mortgage interest rate increases or decreases, as the market hovers +/- 7% with paying a discount point or two. Anyone purchasing a house today should anticipate at least 18 – 24 months before the market shows enough improvement to where a homeowner could save money with a refinance loan.

    See Current Mortgage Rates

    You can see current, up to the minute national mortgage rates averages here. Note that the rate YOU may get can vary based on credit, program, purchase or refinance, and more.  Plus, mortgage rates can change all day everyday…