top of page

Understanding The Federal Reserve and How It Affects Your Home Financing

In today's evolving economic landscape, keeping up with financial updates and their implications can be a bit overwhelming. This is especially true when you're thinking about the biggest investment of your life – your home. Let's take a look into the recent Federal Reserve's decisions and how they may affect the mortgage industry, and ultimately, your home financing plans.

Federal Reserve Building with chart of bond yields soared

The Federal Reserve's Recent Actions

The Federal Reserve Board, often referred to simply as "the Fed," held their policy rates unchanged in their recent September meeting. This decision was anticipated by many market observers. But here's an essential thing to understand: the Fed's rates and mortgage rates aren't always tied together. So, even if the Fed's rate remains the same, mortgage rates might shift.

Mortgage Rates: A Different Ball Game

Mortgage rates are determined by the demand for mortgage-backed securities (MBS). Without getting too technical, just know that investors keep a close eye on the Fed's next steps, rather than their current actions. Based on the information released after their meeting, the Fed is keen on maintaining inflation at 2%. They've signaled that economic conditions might lead to further rate hikes this year. This very hint can cause ripples in the mortgage market.


Because MBS investors, the folks behind your mortgage rates, are constantly evaluating potential future actions of the Fed, in addition to other market forces. This means that mortgage rates can change even if the Fed's rates remain stable.

The Larger Context

Diving a bit into the history, the Federal Reserve Board controls the federal funds rate and discount rate. These are essentially the rates at which banks lend money to each other or receive loans from the Fed.

The objective behind these rates? Keeping inflation in check. In simpler terms, the Fed tweaks these rates to ensure that the economy doesn't heat up or cool down too quickly. They've been maintaining a target of a 2% inflation rate. This means they adjust the rates to ensure prices (for things we buy) rise at a steady, manageable pace.

In 2020, as a response to the global pandemic, the rate was slashed to nearly zero. But with the economy showing signs of recovery, the measures are gradually reversing. The benchmark rate is now at its highest since 2001.

What Does This Mean for You?

If you're in the process of buying a home or refinancing, these changes can impact the interest rate you receive. But fear not! There are always solutions and strategies you can employ to navigate these waters effectively. Options like fixed-rate buydowns, hybrid ARMs (adjustable-rate mortgages), and HELOCs (home equity lines of credit) might be just the tools you need to proceed with your plans.

But, if you're considering waiting for more favorable rates, this could also be an excellent time to start preparing. Make sure all your financial ducks are in a row, so you can strike when the iron is hot.

So, Should You Wait or Act Now?

There's no one-size-fits-all answer. Every individual's financial situation and goals are unique. The key is to stay informed, weigh your options, and be ready to act when the conditions align with your aspirations.

Ready to Take the Next Step?

Navigating the mortgage landscape can be a bit daunting, especially if it's your first time. But remember, you don't have to do it alone. With the right guidance and a trusted partner by your side, your homeownership dream is within reach. If you have questions or are looking for assistance, feel free to reach out. Together, we can chart the best course forward for you.

20 views0 comments


*No down payment loans: Closing costs and fees may still apply. First lien interest rates may be higher when using a DPA second. Opinions expressed are solely my own and do not express the views of my employer. Pre-approvals are given to clients who have met qualifying approval criteria, for specific loan requirements, and have been pre-approved by a PRMI underwriter. VA home loan purchases, have options for 0% down payment, No private mortgage Insurance requirements, competitive interest rates, with specific qualification requirements. VA Interest rate reduction loans (IRRRL) are only for Veterans who currently have a VA loan, current loan rate restrictions apply, and limits to recoupment of costs and fees apply. VA Cash-out Refinances are available for Veterans with or without current VA loans. Policies and guidelines may vary and are subject to the individual borrower(s) qualification. Program and Lender overlays apply.

bottom of page