The Nonstop Dance Between Mortgage Rates and the Fed
TL;DR - Mortgage rates are determined by independent mortgage lenders and the Federal Reserve. It’s a kind of dance.
Mortgage rates.
They affect us all — homeowners and real estate investors in particular.
But still, we don’t know a lot about them.
And yet we’d probably benefit a lot if we did.
It begs the question…
Who/what controls mortgage rates? How are they set?
The Nonstop Dance Between Mortgage Rates and the Fed
The Federal Reserve
The Federal Reserve or “the Fed” is the nation's central bank.
The Fed guides the economy with two goals:
Encourage job growth
Keep inflation under control
It’s responsible for setting a benchmark interest rate that affects mortgage rates. Which in turn impacts borrowing costs for consumers and businesses.
So it influences — not controls — mortgage rates.
Instead, mortgage lenders make their own decisions on mortgage prices based on their strategy and the current market conditions.
Basically…
Mortgage rates can be affected by plenty of factors — not just the Fed.
But the Fed does carry a lot of influence on mortgage rates!
How Are Mortgage Rates Set?
Mortgage rates are typically determined by mortgage lenders.
These lenders decide what mortgage rate to offer based on their own strategy and the current market conditions.
The mortgage market — like most markets — is subject to supply and demand.
When mortgage rates drop, mortgage lenders tend to get more applicants. This means that mortgage lenders may be able to charge a higher mortgage rate due to increased demand.
On the flip side, when mortgage rates rise, mortgage lenders tend to get fewer applicants. This means that mortgage lenders may have to lower their mortgage rates in order to compete with other mortgage lenders.
The Federal Reserve also has an indirect impact on mortgage rates through its policies and actions.
The Federal Reserve sets a benchmark interest rate that affects mortgage rates. When the Fed increases its benchmark rate, mortgage lenders may have to increase their mortgage rates in order to remain competitive.
When the Fed lowers its benchmark rate, mortgage lenders typically lower their mortgage rates as well.
So…
Mortgage rates are ultimately determined by independent mortgage lenders and the Federal Reserve.
It’s a kind of dance.
Sometimes the Fed will be the main influence on rates. Then mortgage lenders gain the leverage. Then back. And forth. Back. And forth. And so on.
The Nonstop Dance
Mortgage rates are in a constant state of flux.
The mortgage market and the Federal Reserve may be guiding mortgage rates separately — but they’re still entwined in a nonstop dance.
The mortgage market can lead or follow the Fed at any given time.
Sometimes mortgage lenders will adjust mortgage rates in response to the Federal Reserve’s benchmark rate. Other times mortgage lenders will lead the Fed by changing mortgage rates independent of any Fed-related news.
The mortgage market is complex and dynamic. But understanding how mortgage rates are set can help you make better decisions when it comes to your own mortgage.
If you keep an eye on mortgage lenders and the Federal Reserve…
You can stay informed about mortgage rates and take advantage of opportunities.
The key word there is take — you have to put in the work!
Happy Hunting!
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