While the impact of the federal interest rate is often of little concern to most consumers, it can have a long-range effect on purchasing a home in the future and the mortgage industry in general. The Fed Rate can go up or down although in some cases, it stays flat. So, what exactly is the Fed Rate and how can it affect your home mortgage?
The Federal Reserve Bank sets the federal interest rate and is commonly used when banks lend to one another from their reserves. The FOMC or Federal Open Market Committee sets the rate and may adjust it up to 8 times during the year. Whenever the economy goes through a recession or slows down, the Fed Rate is usually adjusted down. The purpose is to encourage banks, lenders, and eventually consumers to put money into the economy by spending more. Conversely, when there’s an economic upswing, the rate will be raised in order to slow the economy down and stabilize it.
The Fed Rate and Ohio Home Mortgages
We normally see the impact of lowering or raising the federal interest rate pretty quick in credit card interest rates. Because these rates are linked to the lowest interest rate offered by banks or the Prime Rate as it is commonly referred to, these rates rise and fall in conjunction with what the Fed Rate is doing. However, mortgages are another story entirely. Mortgages are considered long-term products, many of which have “fixed” rates on 30-year terms.
This means that the rate you get on a 30-year home loan will never change during that 30-year term. So regardless of whether the Fed Rate decreases or rises during that 30 years, your mortgage won’t be impacted. The Fed Rate doesn’t impact the home loan and mortgage industry the way it does other sectors. However, when the economy is in a healthy state, this will positively impact a lender’s willingness to loan you money when buying a home. You can contact us to know more about the nuances of taking a mortgage.
When rates decrease during your fixed rate mortgage’s term, it may be feasible to think about refinancing your home in order to take advantage of a lower rate. There are a number of factors that can influence a person’s decision-making such as your home’s equity, how much longer you’ll be paying on your current mortgage, and your overall credit and financial stability. For more information, call Liberty Capital Services at (614) 505-0620 today or visit our website by clicking here. Our business representatives are here for your assistance.