federal reserve

7 ways the Fed's decisions on interest rates affect you

Little influence on mortgages
Little influence on mortgages | Hero Images/Getty Images

Little influence on mortgages

Mortgage rates respond to market forces -- specifically, to the needs of bond investors. The Federal Reserve exerts an indirect influence on mortgages.

Sometimes mortgage rates go up when the Fed increases short-term rates, as the central bank's action sets the tone for most other interest rates. But sometimes mortgage rates fall after the Fed raises the federal funds rate. Look at the last time the central bank went on an extended rate-raising campaign:

Starting in June 2004, the Fed raised the federal funds rate 17 times in two years. And what happened at first? Mortgage rates fell during the summer and fall of 2014. Back then, the Fed's rate hikes caused investors to become less concerned about inflation, so mortgage rates fell.

Mortgage rates eventually rose, and were higher in June 2006, at the end of the rate-hiking campaign, than they were at the beginning, two years earlier.

Housing economists for the Mortgage Bankers Association, Fannie Mae, Freddie Mac, Realtor.com, and the National Association of Realtors all expect mortgage rates to rise in 2017.

SEARCH RATES: Moving up to a new home? Our rate tables are your friend.

advertisement

Show Bankrate's community sharing policy
          Connect with us
advertisement
advertisement

Blog

Holden Lewis

Trump halts FHA fee cut

The Trump administration has suspended a cut in fees on FHA-insured mortgages that had been set to take effect this month.  ... Read more

advertisement

Connect with us