(TNS)—With the next Federal Reserve meeting set for Nov. 2-3, now is probably a good time to lock in a mortgage rate whether you’re planning a home purchase or a refinance in the near future.
It’s likely that the (indirect) outcome of the November meeting will be higher mortgage rates, so locking in a mortgage while rates are still low today could mean more money in your pocket in the long run.
How does the Federal Reserve affect mortgage rates?
Here’s the bullet point version:
– The Fed does not directly set mortgage rates
– Fed policy does affect borrowing costs for banks
– If the Fed raises interest rates for banks, those expenses often get passed onto consumers
– So: a revised Fed policy that increases interest rates on other products often leads to higher rates for mortgage borrowers
What is the Fed doing that could push mortgage rates up?
Since the start of the pandemic, the Fed has been keeping borrowing costs low in an effort to stimulate the national economy. These heady days of cheap cash were always numbered though.
Now that the pandemic is more under control and the economy is recovering, most experts expect the Fed to signal slowing down its bond purchases to get back into a pattern that looks more like the pre-pandemic normal. This shift is what everyone has been referring to as a taper for months. In short, the Fed’s massive bond-buying has helped keep rates for all types of borrowing low.
Why should you consider a mortgage rate lock now?
Markets tend to respond to the Fed quickly, so if November really does signal the start of the taper, as many experts predict, you can bet mortgage rates will push upward pretty soon after.
“If you’ve been on the fence about refinancing, there’s an urgency to act quickly because elevated inflation and a less stimulative Fed are both suggestive of higher, not lower, mortgage rates in the weeks and months ahead,” said Greg McBride, Bankrate’s chief financial analyst. “I wouldn’t hold out waiting for a lower rate. With the Fed poised to start tapering their bond purchases, perhaps as soon as next month, and the pervasive concerns about inflation, the risk is definitely to the upside for rates.”
Even experts who don’t think that the Fed taper is key in determining mortgage rates agree that now is a good time to consider a rate lock.
Mortgage rates tend to track the 10-year Treasury, which has now pushed above 1.6% from under 1% earlier in the pandemic.
The trend of ultra-low mortgage rates was never going to be permanent, and they have already been trending up over the last few weeks. Now is as good an opportunity as ever to lock in a lower rate, because the climb is likely to continue, and possibly speed up, after the next Fed meeting.
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