Dec
22

The Fed Raised Rates: What Does This Mean

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The Fed Raised Rates:
Find Out What This Really Means

The Fed just raised its benchmark Federal Funds Rate for the first time in almost a decade. After holding the rate near zero to support the economic recovery, the Fed upped the target rate range to between 0.25 to 0.5 percent.

While a “rate hike” may sound worrisome, it’s important to understand what this really means.

The Fed Funds Rate is the rate at which banks lend money to each other overnight. It is not directly tied to long-term rates on consumer products like purchase or refinance home loans.

This means that consumers should not expect an increase in home loan rates as a direct result of the Fed’s decision.

Instead, home loan rates are tied to Mortgage Backed Securities, which are a type of Bond. Many factors impact the performance of both Stocks and Bonds, and will play a role in the direction of home loan rates as we move into the new year.

For example, an improving economy, higher wages and higher inflation could all cause home loan rates to rise. However, if our economy falters, or if there is continued uncertainty and turmoil here or overseas, investors could seek out “safer” investments like Bonds, which could help keep home loan rates low.

The good news is that you don’t have to figure this out on your own. If you want to see if you can take advantage of today’s low rates, or if you have any questions about the housing market, current rates or loan products, please don’t hesitate to contact us.

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Categories : Interest Rates

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