The Fed is Cutting Rates — But Mortgage Rates are Stubbornly High
Many would-be homeowners — and current homeowners looking to refinance their high-interest mortgages — were excited last month when the Fed finally issued a rate cut. Although the Fed’s interest rate doesn’t set mortgage interest rates directly, home loan rates usually follow in the Fed interest rate’s footsteps (which, in this case, would have lowered a sky-high barrier to entry for many prospective buyers).
But this time, the trend doesn’t seem to be taking — or at least, not yet. In the wake of the Fed’s rate cut, mortgage rates have actually risen, leaving many on the housing and refinance markets to continue to cool their heels and wait. Time will tell if and when mortgage rates will follow in the footsteps of the federal rate, which dropped another quarter-point on Nov. 7.
How does the Fed control interest rates?
It’s a common misconception that the Fed sets national mortgage interest rates.
Instead, the Fed sets a target rate range for the interest rate banks will see when they borrow funds overnight. So, in most cases, a Federal rate cut signifies lower mortgage interest rates. That’s because the banks issuing mortgages can afford to offer lower interest rates when they’re borrowing funds at lower interest rates themselves.
This time, however, mortgage rates are sluggish to follow the Fed’s rate cut. Many first-time buyers have been priced out of the market by rates over 6%, which can substantially increase monthly mortgage payments and increase the time it takes to build equity.
Many who bit the bullet and bought their homes during the high-rate climate would also like to see rates come down so they might refinance their mortgages and achieve more affordable monthly payments.
Keeping housing costs affordable, no matter your interest rates
It’s undeniable that high interest rates can keep otherwise qualified buyers out of the housing market. An interest rate difference of just 1% can correspond to hundreds of dollars per month in a mortgage payment, and that’s before any of the additional costs of homeownership like homeowners insurance or private mortgage insurance (PMI).
However, there are steps you can take to help keep your housing costs down, regardless of what the interest rate market is doing.
For starters, keeping up with seasonal home maintenance can help maintain your home’s value and avoid expensive homeowners or renters insurance claims — not to mention the out-of-pocket costs you might incur in repairs after damages.
And if you do own your own home already, shopping around for the best homeowners insurance pricing can save you almost $1,000 per year. That’s a substantial payoff for making a couple phone calls.
Finally, setting an achievable household budget can help ensure you have enough to make ends meet — by avoiding extraneous spending that can cut into the cash you need to float your living expenses. After all, if housing represents a larger chunk of the pie, slimming down other slices can go a long way.
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