For the second time in 2017, and the third time within seven months, the Federal Reserve raised its benchmark Federal Funds Rate at its June 13-14 meeting. As expected, the increase was set at 0.25 percent, bringing the new target rate range to between 1 to 1.25 percent.
What does this mean ... and how could this impact you?
The Fed Funds Rate is the short-term rate at which banks lend money to each other overnight. So while a "rate hike" may sound negative, it's important to remember that long-term consumer products like purchase and refinance home loans are not directly tied to the Fed Funds Rate. This means consumers should not expect home loan rates to rise as a direct result of the Fed's actions.
Instead, home loan rates are tied to Mortgage Bond market performance. When Mortgage Bonds improve, home loan rates tend to improve as well. The reverse can also be true.
Following the meeting, Fed Chair Janet Yellen noted that in addition to forecasting one more increase to the Fed Funds Rate this year, the Fed also plans to reduce its $4.5 trillion balance sheet, which it expanded in order to fight the housing crisis. The news had a positive impact on Mortgage Bonds temporarily. Then, Stocks, Bonds and home loan rates steadied.
The bottom line is that now is a great window of opportunity for anyone considering a home purchase or refinance because home loan rates are still near historic lows.