May 14

What Fed’s Rate Hike Means for Mortgage Borrowers

Consumers can expect higher borrowing costs across the board after the Federal Reserve announced it would raise its short-term benchmark rate for the first time in three years, financial analysts say. The Fed increased its target federal funds rate by a quarter of a percentage point Wednesday after it had been near zero. The central bank is expected to increase its rate six more times by the end of the year as it tries to tame the highest inflation in 40 years.

The Fed’s rate—which is the interest rate at which banks lend to one another—often indirectly influences mortgage rates. The rates on long-term fixed-rate mortgages are expected to move higher, and the average 30-year fixed-rate mortgage, which is above 4%, likely will continue to increase, Jacob Channel, senior analyst at Lending Tree, told CNBC.

CNBC offered an example of how that could impact borrowers: On a $300,000 30-year mortgage with a 4% rate, borrowers may pay about $1,432 a month. If that rate rose to 4.5%, that same mortgage would cost $1,572 a month. Financial experts recommend that borrowers with an adjustable rate mortgage refinance into a fixed rate before any further increases.

©National Association of REALTORS®
Reprinted with permission

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