LIME REALTY GROUP has spent a lot of time this holiday season thinking about the FED and whether or not FED Chair Janet Yellen would raise the interest rate.  For those of you also following the market, you’ll know that she did.  Finally.

So now the question is…  What does that mean for the mortgage rate market?  Are the interest rate and the mortgage rate the same thing?  

Here’s a little lesson on the two rates and how they’re influenced.

The mortgage rate is determined by Wall Street and the interest rate is determined by the FED.  That being said…  How does the interest rate move the mortgage rate?  And even more importantly, DOES it actually move the mortgage rate?

The answer is yes and no.  Raising the interest rate doesn’t have an impact on the mortgage rate.  It directly affects economic growth by encouraging risk in the market with trading and investing.  It also promotes job growth and inflation.  The reason why the rate has stayed so low is because these things haven’t exactly happened on a scale that indicates strong growth.  

Once we see strong growth occurring, the FED raises the rate to help stabilize and control growth in the economy.  So from this perspective, the FED has no control over mortgage rates whatsoever.  They don’t decide if the rate will go up or down.

However, when the FED issues a statement or takes a position, it does stimulate the market in other ways.  For example, if the FED announced it would continue to hold the interest rate down to encourage continued growth, investors and traders on Wall Street would continue to borrow and trade money at lower interest rates.  This would encourage more transactions and more money changing hands.  The opportunity to make money happens during those transactions.  There were be more risk taking and more speculation in the market.  This positive movement in trading would help keep the mortgage rate down.  

However, raising the rate, the cost of transactions increases and as it trickles down, traders will slow down their trading and be a bit more cautious about what they invest in.  Mainly because their risk is higher.  This could be seen as a loss in confidence in the market and as such would cause the cost of things like mortgages to increase.

So the FED doesn’t actually set the mortgage rate, but it does strongly affect it.  And this is what we’ve been waiting to see.  Right now, the rate is still hoovering just above 4% at 4.11%.  It’s already up .02% from yesterday and we should see it start to climb steadily from this point forward.  2015 saw the rate hoovering around 4% but that shouldn’t be the case any longer.  

How does that affect you as a home buyer?  It means the power of your dollar will decrease and the cost of your mortgage will increase.  This represents a number of effects.  The monthly cost of your mortgage will be higher is one of them.  Another is the amount of home your dollar will actually buy.  That will decrease.

So now more than ever, it’s time to lock in a rate and start shopping for a home.  It’s essential to contact Lime today and let us help you start to get your finances in line.  Locking in a rate will never be more beneficial than it will today.  So call the Lime team and let us start working for you.