How the Federal Funds Rate Impacts Your Mortgage Rate
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Mortgage rates can be confusing—let’s break down what really drives them and what it means for you.
How Are Mortgage Interest Rates Determined?
Mortgage rates fluctuate due to a complex mix of factors, including inflation, economic growth, housing market trends, and the Fed’s monetary policy. With so many influences at play, interest rates will always be a moving target, making it crucial to stay informed.
The Federal Reserve's Impact on Mortgage Rates
The United States Federal Reserve Bank set up a monetary policy to help determine the actions the Fed makes to help the nation with high employment rates, stable prices (aka inflation) and interest rates. Each of these things affect the amount of federal funds available in our banking system so it’s important the Fed keeps track of ongoing changes. This allows the Fed to provide financial forecasts to keep our country’s bank reserves healthy for long-term economic growth.
As the Federal Reserve meets, they look at buying or selling Treasury bills and mortgage-backed securities (MBS) which influence the mortgage rates that trickle down to home buyers. When the Fed buys more securities, rates tend to go down and when the Fed sells securities, mortgage interest rates usually move up.
What Affects Your Mortgage Rate?
You might be wondering how your mortgage interest rate will be determined for your home loan. There are 7 key factors that impact your personal interest rate:
- Type of loan: Different categories of loans (like conventional, fixed rate, FHA, USDA, VA etc.) all have different rates.
- Type of interest rate: Mortgage interest rates come in two basic types—fixed and adjustable. Fixed rates do not change over time while adjustable rates change based on what is going on with the market.
- Loan term: The length (i.e. 30-year vs. 15-year) of your loan will affect your interest rate too. Shorter terms usually have smaller rates.
- Down payment amount: Generally, a higher down payment means you’ll have a lower interest rate on your home loan. This is simply because you’re putting more money down upfront which impacts the amount of your monthly payment and your interest rate.
- Credit score: In general, if you have a higher credit score you’ll receive a lower rate than if you have a lower credit score. The exception here is if you have no credit score. Churchill is one of the few lenders who specializes in no score loans. We work hard to make sure you’re not penalized for non-traditional credit.
- Home price and loan amount: Your home price minus your down payment will determine how much you’ll borrow which helps determine what your rate will be.
- Home location: The state you live in and the location (rural or urban) is another one of the determining factors.
Just Remember…
While today’s mortgage rates may seem high, the cost of waiting could be even higher. Home prices continue to rise, and delaying your purchase could mean paying more down the road—whether through higher prices, increased competition, or missed opportunities to start building equity.
Reach out if you have any questions about interest rates or if you just need more information about the home loan process. We’re happy to help set you up for success!
*https://www.consumerfinance.gov/about-us/blog/7-factors-determine-your-mortgage-interest-rate/
