The Federal Reserve can play a role in the overall amount of your home loan. It can be useful to know how exactly the recent activity of the Federal Reserve is going to affect purchasing a home, particularly for those who plan to do so in the near future.
By being able to study the actions taken by the Federal Reserve, you can determine the most opportune time to purchase. While the difference between a 4.5 percent interest rate and a 5.0 percent interest rate on your mortgage may seem insignificant, it can lead to having to pay $100 or more extra each month.
The following is everything to know about the Federal Reserve and how it affects the status of your next home loan.
The Role of The Federal Reserve
The Federal Reserve is essentially the bank of the U.S. government, and it works to supervise and regulate banks and other financial institutions all across the country. The main purpose – or intent – of the Federal Reserve is to promote a healthy economy in the United States, one in which allows consumers to safely and effectively plan for a stable financial future.
One way the Federal Reserve works to promote a healthy economy is by influencing interest rates on loans provided by financial institutions. The Federal Reserve does not directly dictate mortgage rates, but they can influence it through various means.
The Federal Reserve and Mortgage Rates
So how would the Federal Reserve affect mortgage rates and subsequently the price of home loans overall? Banking institutions rely on the activity of the Federal Reserve to determine their own interest rates. The higher the Federal Funds Rate, the higher a mortgage rate is likely to be, although the direct correlation between the two is widely debated.
The Federal Reserve may decide to increase their interest rate when the economy is doing well in order to avoid inflation. On the other hand, a slower economical time may lead to lower rates by the Federal Reserve in order to encourage more spending.
When is The Best Time to Buy a Home?
Ideally, it is best to purchase your home when mortgage rates and the overall cost of home loans are at its lowest point. The Federal Reserve raised rates four times in 2018, and subsequently, the average mortgage rate increased throughout the year.
Many experts believe the Federal Funds Rate will stay more constant throughout the year, which may be an indication to more favorable mortgage rates for the consumer. To learn more about the current state of the market, consider talking to a realtor about when the best time to buy a home may be.
The Bottom Line
So what does all this mean? To sum it all up, the Federal Reserve can have an indirect impact on mortgage rates, and raised rates by the Federal Reserve could indicate higher mortgage rates, whereas stable or lower rates placed on banks by the Federal Reserve may suggest more favorable mortgage rates for consumers.
EXIT Realty Bob Lamb & Associates is Murfreesboro’s most innovative real estate team.
EXIT Realty Bob Lamb & Associates
2630 Memorial Blvd, Murfreesboro, TN 37129