Do Federal Rate Changes Impact Mortgage Rates?

Do federal rates changes impact mortgage rates?

The Federal Reserve cut the federal funds rate three times in 2019 — and there’s always a chance more cuts are coming in our future.

Could that impact mortgage rates or your ability to buy a house? Does it matter at all if you’ve already bought a home?

Yes, yes, and definitely yes.

Why the Fed Funds Rate Matters

Though the federal funds rate more immediately influences short-term interest rates (those on credit cards, home equity lines of credit, etc.), it can also impact mortgages and other long-term products as well.

As Preetam Purohit, Head of Hedging and Analytics at Embrace Home Loans explains, “Although the fed funds rate is on the short end of the curve and mortgages on the longer end — ultimately they both represent costs associated with borrowing and hence have a high correlation. The Federal Reserve is responsible for determining the monetary policy, and increasing or decreasing the fed funds rate is one of the biggest policy tools that they have.”

When the Federal Reserve cuts its rates, here’s what it could mean for the average homeowner or buyer:

  • More favorable terms for home equity loans or home equity lines of credit
  • A lower interest rate on your existing home equity loan or HELOC
  • A lower interest rate on your credit cards
  • A lower mortgage rate environment, making it a smart move to buy a home or refinance their current mortgage
  • More favorable rates on car loans and other short-term products

On the outside, it might not look like mortgage rates are influenced that much by Fed rate changes, but that’s because most rate cuts are predicted well ahead of time. According to Purohit, “A large portion of the price and rate change due to the Fed action (cut) is already built into the market expectations, and hence on the day of the actual rate cut announcement, markets mostly stay at similar levels.”

Looking Ahead at Mortgage Rates

With the economy strong and jobs growing, Purohit and other economists largely expect the Fed rate cuts to cease for the foreseeable future. That is “unless something drastically changes with the economy,” Purohit says.

Still, as with everything, the future is uncertain, and understanding how future Fed rate cuts could impact the market is critical to long-term financial health. Want to learn more about mortgage rates or see what rates you qualify for on a home loan or refinance? Then get in touch with an Embrace Home Loans expert today. We’ll walk you through your options.

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Aly Yale

Aly J. Yale is a freelance writer focusing on real estate, mortgage, and the housing market. Her work has been featured in Forbes, Bankrate, The Motley Fool, Business Insider, The Balance, and more. Prior to freelancing, she served as an editor and reporter for The Dallas Morning News. She graduated from Texas Christian University's Bob Schieffer College of Communication with a major in radio-TV-film and news-editorial journalism. Connect with her at or on Twitter at @AlyJwriter.