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New: Did you know that in the 80’s the mortgage rate was 16.6% at one time?

Posted on May 4, 2016

On Wednesday, the Fed voted to maintain the current rate of interest but did signify the possibility of rate hikes later in the year. As such, the federal funds rate will remain in the current range of 0.25-0.5%.

In its press release, the Fed indicated a sense of optimism in regards to the presence of improvement in both household incomes and the labor market. Additionally, the Fed noted the housing sector has continued to improve since the beginning of 2016. However, inflation is still below the Fed’s ideal rate of 2%, while consumer spending, investment in the business sector, and net exports are not as strong as they could be. The Fed’s overall consensus is that, while the economy is still showing steady signs of improvement, there are still a few obstacles in the way. As such, the Fed has chosen to keep the federal funds rate unchanged for the time being.

The Fed’s next meeting will take place in June, and there is a possibility that we’ll be seeing rate increases by July. At any rate, the Fed hopes to authorize about two rate hikes during the remainder of 2016.

How Does This Affect Mortgage Rates?

Contrary to a common belief, the Fed does not actually directly control mortgage rates. The Fed controls the ebb and flow of the federal funds rate, but mortgage rates stem from Wall Street. However, the decisions that the Fed makes do exercise influence on mortgage rates.

Overall, the Fed acts as a guide for the economy. One of its biggest concerns is inflation, which also tends to affect mortgage rates. The more the Fed indicates that inflation is on the rise, the more mortgage rates tend to respond by rising in turn (that’s why, during the 1980s, high inflation was accompanied by correspondingly hefty mortgage rates). In short, higher inflation generally means higher mortgage rates, and so the Fed’s outlook on inflation is the key factor in how its decisions affect mortgages.

In this case, the Fed has signaled that it wants to hold things steady, and so mortgage rates will probably see little change for the time being.  For a house hunter, this is good news, as rates are currently low and affordable. As of Tuesday, April 26th, the average 30-year FRM was hovering around 3.68%. Mortgage rates are always susceptible to some rate of change, but the Fed’s decision suggests that mortgage rates won’t be changing dramatically over the next couple of months.

If the Fed does decide to move on with two more increases during the coming year, it might be a good idea to secure an FRM now. While any coming rate hikes aren’t likely to be dramatic, they could influence the market in such a way that mortgage rates will rise from their present state. As such, there’s no time like the present to capitalize on the current low rates and take on a new mortgage or refinance your home.

For advice on managing your mortgage, contact Cody Touchette, MLO # 83216, Pickett Street’s preferred lender.

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Cody Touchette

18704 Bothell Way NE Bothell, WA 98011

O: (425) 949-0630 | F: (855) 873-4548





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