How Will Mortgage Rates be affected with the Federal Reserve Rate Increase?

Most people don’t remember the last rate increase because it was so long ago, back in 2006. Even though the timing of this increase isn’t certain, is it likely to happen sometime this year, economists estimate. If the Fed raises rates gradually, higher short-term rates will ripple through markets and affect a wide variety of financial products based on market yields, from fixed-income funds to mortgage and credit cards.

Mortgage rates are hugely determined by the market movements, but the Fed also has a huge influence in this. It can impact lenders borrowing cost according to Bankrate.com. As stated in the article, “When the Fed buys mortgage bonds and U.S. Treasuries, it increases demand for these investments. Such purchases tend to keep mortgage rates down. In the other direction, The Fed can decrease demand by selling bonds, which could send mortgage rates up.”

Higher rates effect future buyers because higher rates mean higher payments, thus buyers housing dollars don’t stretch as far. It can make it harder to qualify based on a higher debt to income ratio.