The Federal Reserve, Higher Mortgage Rates, and What it Means for You

The Federal Reserve opted to increase the federal funds rate by half a percentage point this week — the biggest jump in over two decades. Typically, when the Fed tightens monetary policy and increases its funds rate, we see higher mortgage rates too. 

It happened earlier this year when the bank increased its rate by 25 basis points. In fact, mortgage rates have jumped from 3.85% before the Fed’s March meeting (where that 25-point hike was announced) to 5.27% today, according to Freddie Mac.

Rates are continuing that upswing on the back of this week’s Fed meeting. According to Mortgage Rates Daily, the average 30-year loan rate is now 5.62% — up 12 points in just the last day. 

It probably won’t be the last increase either. The Federal Reserve has indicated it will continue increasing the funds rate to get inflation under control across the year. Though another 50-point hike probably isn’t the cards, any increase — however small — could translate to higher mortgage rates for consumers. 

What do these higher mortgage rates mean for homeowners and homebuyers? Let’s take a look.

1. You’ll need to adjust your home buying budget.

Higher mortgage rates make buying a home more expensive. To account for them, you’ll either need to budget for higher monthly payments or, if that’s not feasible, start looking at lower-priced homes to account for the change. 

If you’re not sure which is best, talk to an Embrace Home Loans team member. They can crunch the numbers and walk you through your options.

2. The clock is ticking if you want to tap your home equity.

Homeowners have gained record amounts of equity over the last few years — and that’s good news. Cash-out refinancing lets you turn that home equity into cash, which you can use to pay off debts, pay for home repairs, or cover sudden expenses.

Refinancing gets less attractive when rates climb higher, though. For one, borrowing just gets more expensive. On top of this, you might end up trading an ultra-low rate for a much higher one (since refinancing replaces your existing loan with a new one at current rates!)

3. Selling might get more expensive.

With higher rates, you might not want to sell your house and buy another property. Just like refinancing, this would mean paying off your old loan and taking out a new one — at current rates — and potentially paying much higher costs to do so. Throw in rising home prices, and you could end up paying significantly more per month than you already do.

Get professional advice

Higher mortgage rates are probably here to stay for a while. If you’re hoping to buy a home, refinance, or sell soon, get in touch with an Embrace Home Loans office in your area today. They can advise you on the best options for your goals and budget.