Understand the difference between their actions… and your mortgage
People always panic when the Fed increases the Fed Funds Rate. Why? They assume that mortgage rates will automatically increase by the same amount.
And so the instant the Fed is in the news, my phone starts ringing off the hook:
“What happened to the rate?”
“I want to lock my rate before the Fed raises rates!”
Unfortunately, reality—and the Fed’s influence over your mortgage—isn’t quite so simple.
Allow me to explain.
A cushion on the economy
The Fed’s job is to do its best to keep the economy healthy.
It doesn’t set mortgage rates. It does, however, influence them.
The Fed Funds Rate that I’d mentioned above is an interest rate that banks use when they lend to each other overnight. When the Fed rate changes, the prime rate typically follows suit. This is tied to shorter-term loans such as credit cards, savings accounts, CDs, auto loans, HELOCs, and (finally) adjustable-rate mortgages. Fixed mortgages, on the other hand, more closely track the ten-year Treasury rate.
As you can see, news about the Fed raising its rate doesn’t automatically translate into disaster for your home-buying or -refinancing plans. You need to step back and review your objectives. Their moves might not impact you as much as you think—or fear.
As I’d said earlier, it’s a complicated topic. But it’s also not a cause to panic. If you have questions, or need help with financing, contact me. I’d be happy to help.
About the author
Suzanne Söderberg is a Scottsdale-based mortgage professional with extensive experience working with divorcing clients. As a Certified Divorce Lending Professional (CDLP™), Suzanne is a financial neutral with the expertise needed to identify any potential conflicts between the divorce settlement, financial planning, and home-equity solutions as well as real-property issues involved in divorce cases. Working with her clients and their attorneys and financial advisors, she helps them understand how the decisions they make today will impact their ability to obtain a mortgage in the future. For more information, visit her website.