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What the Fed rate hike means for homes

Posted by The Aramco Group on Thu, Dec 22, 2016 @ 14:12 PM

In an expected but still significant move last week, the Federal Reserve announced that it will raise short-term interest rates for the first time in a year by a quarter percent. The increase also marks only the second time the Fed has made such a move in nearly a decade.

Known as the Fed Funds Rate, the benchmark interest rates is the cost at which banks borrow money from another. The impact can be felt by credit card holders, those with savings accounts that accrue interest and even student loans. Changes to mortgage rates due to Fed rate hikes are nominal.

Mortgage rates tend to follow the bond market, namely the yield on the 10-year U.S. Treasury note. Bond yields can cause 15 and 30 year fixed rates to fluctuate. Investors often flock toward the bond market when they sense uncertainty in the economy and inflation, as they have in recent years which brought mortgage rates near historic lows. Today, conforming no-point 30-year fixed rates are averaging 4.25 percent while the 15-year rates are near 3.50 percent.

Do you have a question for Real Estate & Mortgage Analyst Mehran Aram? Submit your queries about a home purchase, refinance, or reverse mortgage via Aramco.Biz, social media (#AramcoReport), or over the phone at (866) 381-8888 and your questions may be featured in an upcoming article.