Are Mortgage and Fed Rates the Same?

Why mortgage rates and the Fed’s rate aren’t directly related.

“How are mortgage rates determined?” Rising interest rates are on everyone’s minds right now, but who decides when they rise and fall? What are they based on? Today I’ll answer those questions and explain what you need to know about mortgage rates. 

Contrary to popular belief, the Federal Reserve does not directly control mortgage rates. When you hear in the news that the Fed is raising interest rates, those rates are tied to other investment products.

When you receive a mortgage, investors are putting up the money for your loan. After all, the funds have to come from somewhere. They’re offering you money upfront, and in return, you pay interest on the loan. 

"The Federal Reserve does not directly control mortgage rates."

Think about mortgages from an investor’s perspective. They are just one of many investment options available. When the Fed raises interest rates, other investment products become more attractive. To compete, mortgage providers raise their interest rates. In this way, your mortgage rate is affected by the Fed raising rates but only indirectly.

If the Fed raises interest rates, it doesn’t mean that mortgage rates will increase by the same amount. In fact, sometimes mortgage rates fall when interest rates rise. That being said, it is generally true that mortgage rates tend to increase when interest rates do.

In summary, there is a correlation between the Fed rate and mortgage rates, but they aren’t directly related. If you have questions about this topic or anything else, please call or email me. I’d love to speak with you!