How a Fed Rate Hike Will Affect Mortgage Rates Roger Odoardi The Federal Reserve appears primed and ready to hike the federal funds rate in the coming weeks, a move that many expect will cause mortgage rates to rise. News of the eventual rate increase was solidified December 3 when Federal Reserve Chairwoman Janet Yellen indicated before Congress’ Joint Economic Committee that she is ready to raise rates at the Fed’s policy meeting later this month. The reason, according to Yellen, is because the domestic economy is improving. If what Yellen is telling Congress does in fact come to fruition, the federal funds rate — the rate at which large lenders lend each other money — will rise in the near future. Experts expect this to have a trickle-down effect on all other interest rates, most notably mortgage rates. Here’s what you need to know: Mortgage Rates Are Always in Flux Mortgage rates are constantly fluctuating as a result of ongoing economic conditions here and abroad. The incessant chatter surrounding the Fed looking to raise rates is one of the biggest reasons you’ll see mortgages rates rise day-to-day — in some cases as much as three-eighths to one-half of a percentage point. As an example, Yellen’s recent comments before Congress about the potential for a rise in the federal funds rate caused mortgage rates to rise ever so slightly. The lesson here is that the mortgage market is pretty sensitive to news regarding the economy, namely jobs reports. The market is especially sensitive whenever Yellen has anything to say about interest rates — hence the slight uptick in mortgage interest rates recently. Rates Almost Always Eventually Begin to Decline While rates will tend to spike quickly when speculation runs rampant, they eventually find themselves floating back down to traditional market levels. More often than not the rates begin to tick back down after a week or so. But… Eventually the Rates Won’t Come Back Down If the Fed’s funds rate is increased and the mortgage market is in fact on the doorstep of a rate increase, experts believe the rise will likely remain in place for some time. While it’s true there’s been some cyclical rise and fall over the years, the decision to finally raise the Fed’s funds rate will have a long-lasting impact on mortgage rates. How This Affects You If the federal funds rate is increased, mortgage rates are sure to rise. And when rates rise, that increase will get passed on to you, the borrower. In short, the higher the interest rate is the higher your payment will be. A rise in mortgage rates can also impact you if you’ve been pre-qualified for a mortgage, but have yet to seal the deal. If the rates rise, this could potentially disqualify you for the size of mortgage you’ve been qualified for based on your debt-to-income ratio. What You Need to Do Now It’s not time to panic. But it is time to consider your options and talk with a loan officer. If you’re a prospective homebuyer, now is likely a good time to get pre-qualified while the rates are low. If you currently hold a mortgage with an adjustable rate, it may be be a good time to touch base with your lender or broker to discuss how the eventual rise in rates will impact you moving forward. At Blue Water Mortgage, our trusted team of mortgage experts is constantly keeping its eye on what the Federal Reserve is up to—most importantly whether the Fed’s activity will cause mortgage rates to rise. Contact us today if you’re unsure of how the future increase in rates will impact you and you need straight answers. Roger Odoardi Roger is an owner and licensed Loan Officer at Blue Water Mortgage. He graduated from the University of New Hampshire’s Whittemore School of Business and has been a leader in the mortgage industry for over 20 years. Roger has personally originated over 2500 residential loans and is considered to be in the top 1% of NH Loan Officers by leading national lender United Wholesale Mortgage.