Fed rates increased another 0.25% moving the overnight Fed Fund rate to 4.5% – 4.75%, the highest since October 2007. The marks the 8th increase since March 2022. For many homeowners who have a home equity line of credit loan, you will see a monthly interest payment increase as the Prime Rate is now at 7.75%, comparing with 3.25% a year ago.
What happens to mortgage rates? Very IMPORTANT note, the mortgage interest rates do NOT increase because of Fed Fund rate increases. Mortgage-Backed Security (MBS) plays a huge factor on the mortgage rates. Each MBS consists a bundle of home loans and other real estate debt bought from banks that issued them. Investors in MBS receives periodic payments from them. Inflation is another important matter that reflects on the mortgage rates fluctuations. Inflation numbers represents the purchasing power of dollars over time. Mortgage lenders have to maintain mortgage rates at a level sufficient to combat and overcome the inflation level to ensure a profit. As the latest inflation figure from December 2022 shows 6.5% is the lowest since October 2021, the 30-year fixed rate mortgage rate has also dropped off from the highest point of 7% in October 2022. Economic growth, housing market demand and supplies all come into play when we discuss mortgage rates.
Future outlook? As the inflation numbers are more in control (or “disinflation” as Chairman Powell pointed out), we will see mortgage rates are more stabilized. Perhaps a good possibility of trending down is in horizon. More buyers will result from more favorable interest rates with higher purchasing power. Once the weather gets warmer, more housing inventories will also increase.
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