The Fed funds rate is the rate at which the Fed lends money to banks, and banks lend money to each other, NOT the rate that consumers borrow at.

When the Fed raises the Fed funds rate, it is generally to fight inflation.  Beginning in early 2022, inflation began to skyrocket, and throughout 2022 and so far into 2023, the Fed has consistently raised their rates to curb inflation.  While inflation has slowed, recent data points to inflation being higher than the Fed’s target rate, and for this reason, rate hikes have continued into Q2 2023.  Future rate hikes will depend on the direction of inflation from here.

It’s important to note that mortgage rates are not directly tied to the Fed’s actions.  Since high inflation results in high mortgage rates, the Fed rate hikes often help bring mortgage rates down, since reductions in inflation lead to reductions in mortgage rates.  Some other financial products are, however, tied directly to the Fed funds rate.  The “Prime rate” for example, moves in direct correlation with the Fed funds rate, so credit card rates will move up in line with the Fed funds rate.

Since early 2022, the Fed has raised their Fed funds rate by a total of 5%.  That means credit card debt has become 5% more expensive for consumers to carry, and other types of debts have become more expensive as well.  Mortgage rates, though, have come down substantially since their highs seen in October 2022, despite additional Fed rate hikes.

The Fed has signaled that they’ll rely on data and economic figures to determine the future direction of the Fed funds rate, but most forecasts predict the cycle of rate increases is either at or near it’s end, as inflation numbers and economic conditions seem to be shifting.

Mortgage rates improved on the day, and have come down substantially from October highs and another recent spike in February.

For questions about the Fed rate hike, mortgage rates, or anything else housing or mortgage related, you can ask an expert here and get answers instantly!

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A mortgage rate lock allows customers in need of mortgage financing to “lock” in their interest rate.  This is an important feature of mortgages because the markets that influence mortgage rates (Mortgage backed securities, or MBS) trade each day and in certain markets can be very volatile.  Rates can change daily, and sometimes even multiple times in a single day, so having the option for a mortgage rate lock can protect against some of that volatility.

How It Works

With most mortgages a mortgage rate lock happens during the process and a rate is locked to cover the period of time from when the loan process starts through closing and funding.  A borrower will select a lock period and their rate is set at the locked rate for the duration of the lock period.  The most common mortgage rate lock time frames are 30 or 45 days, but in extremely busy markets it can be more typical to see 60 day locks.  In improving markets when rates are going lower, sometimes a lender will wait until just before closing and do a 15 day (or less) rate lock.  Typically, the shorter the rate lock period, the better the rate/pricing will be.

In other situations where a customer wants to lock in a rate to avoid market volatility (ie a market where rates are expected to go up), a mortgage rate lock can be obtained for a longer period of time.  In some cases, this requires an up front fee, usually used more as a deposit that gets refunded at closing, as is the case with MasonMac’s “Lock & Shop” program .  This type of lock can protect home buyers during a new build, rebuild, or a situation where they’re looking for the right home and want to ensure their monthly payment ends up being what is expected.  These longer term mortgage rate lock programs offer that option.

What If the Markets Get Better (or Worse)

By the very nature of a mortgage rate lock, if markets get worse (rates rise), a borrower is protected by their mortgage rate lock.  The rate on their loan cannot increase if it’s locked, even if market rates rise.  But what if rates get better after a borrower locks in?  There are some protections in place.  Usually, if the market sees just slight improvements, a locked loan will retain it’s locked rate.  But if the market improves substantially, borrowers can be offered the opportunity to “float down” their rate to the current market levels.  Sometimes there is a cost for this, but a borrower who has already locked their rate can take advantage of an improving market.  This makes a mortgage rate lock a good idea because in a bad market (rates rising) a borrower is protected, and if the market gets really good really fast, a borrower can usually still take advantage.  Every lender has a different policy on “float downs” so it’s important to ask your loan officer to explain further.

How to lock your rate

Your MasonMac loan officer can review lock options with you to see which type of mortgage rate lock best fits your situation.  If you’re interested in new builds and think rates may go up (or the numbers for you to qualify are tight and rising rates could disqualify you from a loan completely), our lock & shop option may be best.  If you’ve identified a home and are under contract, a shorter term lock would offer you better pricing and protection to your rate through closing.  Our experienced team of loan officers can help you select the option that’s right for you, and talk to you about the best mortgage rate lock options available.  Once you decide to lock, it’s an easy process for your loan officer to make it official, and you’ll receive documentation that reiterates the terms of your mortgage rate lock.

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There’s a lot of economic jargon being tossed around in headlines these days, and one of the hot topics out there is inflation.  To start, it’s important to understand what inflation is.  When the value of a currency diminishes, the result is inflation – basically, you get less for the same or more.  The cost of goods and services increase, costing more money for the same (or worse, less) products or services.  There are many causes of inflation, and it’s a pretty complicated economic phenomena that has caused hardship for many people, and in the worst cases of hyperinflation, has even destroyed currencies throughout history.  The biggest question on many people’s minds today is ‘will inflation go down?’, often followed by ‘when?’.

Will Inflation Go Down?

Inflation is typically analyzed within 2 economic reports – the CPI (consumer price index) and PPI (producer price index).  Both gauge inflation, but PPI excludes volatile energy and food prices.  Each report is analyzed for month-over-month changes, and these month-over-month changes are added together over a 12 months cycle to determine an annual rate, which is usually the metric shared when discussing “inflation”.  For example, if we started with 0% inflation, and each month for the next 12 months, there was a monthly increase of 1%, inflation at the end of that year would be 12%.  This is important because current inflation is important, but it’s equally important to recall the months current readings are being compared to (each month replaces the same month’s reading from the previous year).

It’s important to understand how inflation is calculated to have an idea of when it may go down.  For example, summer of 2021 saw a small dip in inflation, and with inflation currently on the higher end of the spectrum, lower 2021 numbers will likely be replaced by higher numbers for the same months in 2022, making it unlikely that inflation will see a dip this summer.  However, because of the Fed’s rate hikes (an attempt to reign in inflation by making borrowing more expensive) and the fact that inflation was high in the fall months of 2021, it’s very possible we’ll see inflation numbers start to get some relief in the fall.  You can see how inflation has ebbed and flowed in the chart below, so when you see inflation numbers in future months, you can see the month’s being replaced, too, to determine overall inflation.

Will inflation go down? We’ll need to see lower month over month numbers than last year to see overall inflation dip, and summer 2021 saw relatively low inflation compared to fall 21′

This helps to answer the question “when” inflation might go down.  Assuming the Fed can reign in some inflation with their rate hike plan, and also assuming supply chains begin to normalize, you can see above inflation numbers were at a recent low in July-August 2021, so while month-over-month readings in 2022 are replacing these relatively low numbers, year over year inflation is likely to remain high.  Once new numbers begin replacing the higher numbers of late-2021 and early-2022, that year-over-year number, or the annual inflation often presented in headlines, may see some relief.

How does this relate to your mortgage or home buying plans?

A phrase we like to use is “you date your mortgage, you marry your house”.  Since inflation has a relationship with mortgage rates (all else being equal, higher inflation = higher mortgage rates and vice versa), it means mortgage rates may be set to remain on the higher end this summer, with some relief in the not so distant future!  For home buyers, higher rates have pushed some buyers out of the market, and with increases in home inventory in many markets, there may be a great buying opportunity.  And while no one wants a higher rate, if you consider most higher rates equate to higher payments in the ‘hundreds’ of dollars, the reduction in buyer competition and increases in home inventory may mean offers on homes don’t need to be ‘tens of thousands’ over list price as we’ve seen in many markets over the past 2 years.  And if & when rates dip, today’s home buyers may have a refinance opportunity to reduce their payment.

For anyone trying to time the market, it’s a tough task – when we look at charts, data, and history, it’s easy enough to make predictions, but there is still uncertainty over the supply chain, COVID-related issues in many export-heavy countries, and geopolitical issues that are tough to predict.  Our advice is that if you’d like to buy a home and you can afford the payment, it’s a good time to buy!  We recommend contacting a MasonMac Loan Officer before you begin your home search so you’re prepared and informed of the current market, and can be in the best possible position to begin to enjoy the benefits of home ownership!

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