How Mortgage Rates Are Affected by the Federal Reserve

Mortgage with Manny Gomes

I hear this questions all the time: “I heard rates went up with the Federal Reserve. Does that mean mortgage rates have gone up too?” Quite simply, the answer is no. What the Fed controls is the fed funds rate. This is the borrowing cost of capital that banks borrow against the federal government. When the fed funds rate increases, short-term loans (home equity lines of credit, auto loans, credit card loans) tend to increase automatically. “Mortgage rates are actually set by the trading of mortgage-backed securities.” Home mortgage rates are actually set by the trading of mortgage-backed securities in the open market and are not as directly influenced by the fed funds rate as most people believe. The media will talk about rates going higher all the time to sell ad space, but mortgage rates have actually behaved normally. I do believe that we’re at the end of the mortgage rate hike cycle that we’ve seen over the past eight months. We should see them come back down soon. If you have any questions for me or want to know what rates are doing right now, please feel free to give me a call or send me an email. I would love to hear from you.