Carolyn Gersh explains how Federal Reserve rate hikes affect mortgage rates and inflation. The video helps you understand why mortgage rates move when the Fed acts, and what it means for buying or refinancing a home right now.
How will the Fed's recently announced quarter point hike in the fed funds rate affect mortgage rates? The answer may surprise you. The fed funds rate is not the same as a mortgage rate because it can change from one day to another. While mortgage rates could be in effect for 30 years, mortgage rates are primarily driven by inflation which erodes the buying power of a fixed return that a mortgage holder receives. When inflation rises, lenders demand a higher interest rate to offset the more rapid erosion of their buying power. You probably know that inflation has been rising as of late and as a result, so have mortgage rates. When the fed funds rates rate hikes up, they are trying to slow down the economy and curb inflation. If successful in cooling inflation, mortgage rates will actually go back into climb. History proves this. During the rate hike cycles of the past 50 years, however, the Fed may reduce its holding of mortgage bonds which can cause some interest rate volatility. I'm here to help you navigate these uncertain times and find you the best opportunities for a purchase or refinance.
