We have crossed the threshold into a new year, meaning that a lot of people are thinking about what this year may hold for them, and how they can make the most of it. It is an exciting time of year, but it is also a time when some are cautiously wondering about recent moves from the Federal Reserve and how they may impact their mortgage rates and their money.
The Federal Reserve Votes to Taper off Bond Purchasing
The Federal Reserve recently voted unanimously to taper off its bond purchasing program that it started approximately two years ago as the COVID-19 pandemic began to cascade over the United States. The country was in dual health and economic states of emergency at that time, and the Federal Reserve felt that it had no choice but to step in and purchase bonds to try to aid the economy as best as it could during that turbulent time. They may have unprecedentedly large purchases of bonds at that time, but they feel that the time has come to pull back from that strategy.
Those who keep tabs on these types of developments say that the most likely outcome at the moment is that the Fed will likely raise rates approximately three times in 2022. They may raise them another two times in 2023, and two more times in 2024. This is the most likely outcome based on what the Fed has been signaling, and it could mean big changes are coming to the real estate market.
Don't Panic, Your Mortgage Rate Is Not Going to Instantly Climb
The rate that the Federal Reserve is poised to hike is not the rate that directly impacts your mortgage. The two are certainly connected in some ways, but there is not a direct route from one to the other. Rather, the Federal Reserve rate is a rate that is tied into overnight lending between banks. The most direct impact of the rate increases for consumers could be felt on their credit card and personal loan bills. Those rates could easily climb as banks charge more for this form of borrowing as they are charged more to borrow themselves.
The overnight or benchmark rate that the Fed has established has been set at near 0% for many years now. They believe that now is the time to change that, and this means that slowly the rate will begin to rise over the next few years. That could put some consumers in a pinch as they try to keep their heads above water on their credit card payments.
Most believe that mortgage rates will be impacted more acutely by the tapering of bond purchasing by the Federal Reserve. Bankrate.com summarizes this sentiment as such:
Will this latest run-up in rates last? No one knows that answer for certain. But housing economists and market watchers generally agree that a variety of factors - including inflation, the economic recovery and the Fed's pace of bond buying - are lining up to nudge rates higher.
This is sure to generate a lot of panicked news headlines about mortgage rates rising, but you should try to be level-headed about it. Mortgage rates have remained at historic lows for a decade or more at this point, and it was bound to be the case that they would eventually rise. This may provide little comfort to those looking to purchase a home at this time, but perhaps it will cool the real estate market enough to open the door to buyers who are currently priced out. As with everything to do with the Federal Reserve, this one deserves to be watched carefully.
If you are looking to get a mortgage loan before rates start to rise too dramatically, consider getting in touch with the loan officers at First Savings Mortgage. They can guide you through the process and help you find the loan that makes sense given your circumstances.