Economic policy

What the Fed’s New Economic Policy Means for Mortgage Rates

Mortgage rate forecasts changed after the last meeting of the Federal Open Market Committee (FOMC) last week. Here’s what you need to know. (iStock)

The Federal Open Market Committee (FOMC) met earlier this month to discuss changes to the Federal Reserve’s economic policy amid record high inflation. Some of these policy updates will have a direct impact on US consumer finances, particularly the highly anticipated Fed rate hikes.

Federal Reserve Chairman Jerome Powell said during a December 15 press conference that the central bank will accelerate the reduction of its bond-buying program and is considering up to seven rate hikes through 2024, including up to three in 2022 alone.

The Fed has kept the benchmark rate close to zero since the start of the coronavirus pandemic to spur economic recovery. This kept interest rates on a number of financial products at historically low levels. Meanwhile, mortgage rates hit record highs in January 2021, in part due to Fed economic policy decisions.

But time is running out to lock in a historically low mortgage rate. Mortgage rates tend to rise and fall with the benchmark rate, so mortgage rates will inevitably rise when the Fed implements its first post-pandemic rate hikes next year. In fact, mortgage interest rates have already started to rise following the last Fed meeting.

Keep reading to learn more about the Federal Reserve’s impact on mortgage rates, including what you can do to combat rising rates. If you’re considering making a mortgage purchase or refinancing a loan, compare rates on Credible for free before they go up Next year.

THIS IS THE BEST WAY TO REDUCE YOUR MONTHLY MORTGAGE PAYMENT

Mortgage rates rise after last Fed meeting

Mortgage interest rates hit all-time highs in 2021, which was due, in part, to the Federal Reserve holding the benchmark rate near zero.

Average 30-year mortgage rates fell to an all-time low of 2.65% in the week of Jan. 7, according to Freddie Mac. For the 15-year mortgage term, which is a popular choice for homeowners looking to refinance, average rates fell to a record low of 2.10% during the week of July 19.

In the months that followed, mortgage purchase and refinance rates rose several points, hovering at and above 3% for the term of the 30-year fixed rate loan since September. Mortgage refinance rates for 15-year fixed-rate loans are still relatively low, bouncing between 2.3% and 2.4% over the same period.

SHOULD YOU PAY DISCOUNT POINTS TO REDUCE YOUR MORTGAGE RATE?

Compared to recent years, mortgage rates are still near their lowest. That means it’s always a good time for potential buyers and current homeowners to borrow a home purchase or refinance a loan while rates are low — and before they inevitably rise.

You can compare rates from multiple mortgage lenders at once on Credible to help you find the lowest possible rate for your financial situation. You can also use a mortgage calculator to estimate your monthly mortgage payment, as well as the total interest paid over the term of the loan.

VETERANS BORROWING LOANS IS GOING AT A RECORD PACE, STUDY SHOWS

When will mortgage rates go up?

Experts predict that mortgage rates will start to rise significantly from next year. the Mortgage Bankers Association (MBA) the latest mortgage rate forecast estimates that the 30-year average mortgage rate will reach 4% in 2022 and 4.3% in 2023 and 2024. This compares to a 30-year average rate of 2.8% for 2020 and 3.1% for 2021.

In a statement following the FOMC meeting, MBA Senior Vice President and Chief Economist Mike Fratantoni said average rates have remained low over the past year amid rising prices. bond purchases by the Fed, but that they “could be more volatile as the Fed moves away from the market” in 2022.

“While this will lead to lower refinances, we expect the strength of the economy to support an increase in home sales in 2022,” Fratantoni said.

This sentiment is also expressed in the latest Freddie Mac Primary Mortgage Market Survey (PMMS), which said the rise in mortgage rates stemmed from “economic improvement and a change in monetary policy stance” from the Fed.

We expect rates to continue to rise through 2022, which may leave out some potential buyers with less room in their budget.

– Freddie Mac PMMS

WHAT YOU NEED TO KNOW BEFORE MAKING A DEPOSIT ON A HOME

With experts agreeing that mortgage rates will continue to rise as the Federal Reserve continues to update its economic policy, now is the time to lock in a low mortgage interest rate if you are considering buying a home or refinance your existing mortgage.

You can start the mortgage application process on Credible by prequalifying for a home purchase or refinance loan without affecting your credit score. You can also learn more about mortgage rates by contacting a knowledgeable loan officer at Credible.

TAKE ADVANTAGE OF THE HOUSING MARKET NOW BEFORE RATES GO UP, SAYS EXPERT

You have a financial question, but you don’t know who to contact? Email the Credible Money Expert at [email protected] and your question might be answered by Credible in our Money Expert column.