As expected, the Federal Reserve raised its benchmark interest rate by 0.25% at its meeting on Wednesday, March 15. What does this rate increase mean for homebuyers? Here are some questions and answers:
Q. Why did the Fed raise its benchmark short-term interest rate?
A. Federal Reserve Chair Janet Yellen said that “the economy is doing well.” Improvements include moderate increases in job growth and consumer spending. Increasing the Fed rate moderates inflation, which has increased in recent quarters.
Q. Do Fed rate hikes affect mortgage interest rates?
A. The Fed rate is the short-term rate at which banks lend money to each other overnight. It is not directly tied to long-term mortgage rates, and sometimes mortgage rates go in the opposite direction. For example, when the Fed increased its benchmark rate in December 2015, mortgage rates dropped more than 0.50%, and then gradually increased.
Q. Will the March 15 Fed rate increase lead to an increase in home mortgage interest rates?
A. “Wednesday’s hike [March 15] was widely expected, meaning the markets had already priced it in, so many experts don’t see [mortgage] rates moving much higher in the coming weeks,” according to CNNMoney.
Bottom line: Now is a great time to lock in a rate for a home purchase or refinance, while rates are still near historic lows.