You may be hearing in the media that The Federal Reserve System raised interest rates. While that statement is true, the media is making it look like a house-buying nightmare. What if we told you that mortgage rates did not increase but actually decreased? Join us as we discuss what really happened on July 27th with The Federal Reserve.
Short-Term vs. Long-Term Interest Rates
The Federal Funds Rate was increased by .75% on July 27th. But this does not raise mortgage interest rates. Let’s define the difference between short-term and long-term loans to see what happened with the Feds.
Short-term interest rates are the rates that are charged on short-term loans. OCED defines short-term rates as, “…the rates at which short-term borrowings are effected between financial institutions or the rate at which short-term government paper is issued or traded in the market.” Typical short-term loans last between 12 months to 3 years but can last longer depending on the terms. Examples of loans that fall under this category are:
- Credit Cards
- Bank Overdraft
- Trade Credit
- Payday Loans
- Car Title Loans
On the other hand, long-term interest rates are charged on long-term loans. Long-term rates are based on bonds that trade in the Bond Market. Most long-term loans last between three and thirty years, depending on whether it is a personal loan or a mortgage loan. Examples of loans that fall under this category are:
- Mortgage Loans
- Car Loans
- Student Loans
- Small Business Loans
What Does This Mean For You?
As we stated before, just because The Fed raised The Federal Funds Rate by .75% does not mean they raised Mortgage Rates. The Fed simply raised short-term loan rates. In fact, as soon as the Fed raised rates for the Federal Funds Rate, the Bond Markets rallied, and mortgage rates dropped. They dropped to the lowest level in two months!
Since rates did not rise but actually lowered, now is the time to buy. If you have been contemplating purchasing a new home, wait no longer. Lock in your rate and start the journey to your dream home today! Contact our preferred lenders today: