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The Fed, Policy Rates and Inflation – What This Means For Mortgage Interest Rates

May 5, 2022 Mortgage Speak

At their most recent meeting, the Federal Reserve moved policy rates up by 0.5%. The Fed’s announcement is the biggest increase to policy rates since 2000 and is an attempt to tame inflation. Because this increase was expected, interest rates had moved in advance, including those for home mortgage loans. Initial market reactions to the announcement have been positive as most market analysts believe the rate hike has already been “baked into” market interest rates. While the Fed does not directly control mortgage rates, their actions most quickly impact the rates on U.S. Treasury Securities, which can influence Mortgage-Backed Securities and then mortgage rates.

What’s next?
It’s expected the Fed will continue moving rates on an upward path at each successive meeting of the Open Market Committee, so long as conditions warrant. Most analysts anticipate the increases will continue until the Fed has met its directive of containing inflationary forces in the economy.

Background on the Fed:

  • The Federal Reserve Board (the Fed) controls the federal funds rate and discount rate, which are charges for overnight loans from bank to bank or from the Fed to member banks.
  • The rate was lowered to near zero in March 2020 in response to the pandemic. These historic measures are now being reversed.
  • This is the second increase this year.

What this may mean for you:

If you are planning a home purchase or any type of refinancing, including accessing cash from your home’s equity, it may pay to act before further increases. You may want to explore alternatives, including a lower rate, adjustable rate mortgage (ARM) or a closed end second mortgage.  BankSouth Mortgage also offers an extended lock program (up to 180 days!) to protect your interest rate. There are no upfront fees for the extended lock and a one-time float down option is available should the market improve.

We monitor interest rates and the markets every day and look forward to assisting you with your mortgage needs. Contact your local BankSouth Mortgage lender today to discuss your options!

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