May 1: Federal Reserve Leaves Interest Rates Unchanged
FOMC Meeting May 1
With the conclusion of the Federal Open Market Committee meeting on May 1, central bank policymakers have elected to hold steady on the target interest rates. The federal funds target rate remains in the 5.25-5.5% range. This range is the highest level that is has been in over 20 years, and we have been at this level since July 2023.
Investors and Experts Expect only 1 Rate Cut in 2024
After the Fed’s decision today, many people are not hopeful for the initially expected 3 rate cuts in 2024. Many are expceting just 1 cut that will bring the target rate to 5.0-5.25% later this year.
How Does This Affect Mortgage Rates?
Mortgage rates are likely going to stay stable or slightly increase. However, the Fed’s decision does not control the mortgage rates directly and there are many factors that cause fluctuations in mortgage interest rates. For example, mortgage rates fell in late December 2023 even after the Fed help stable on the target rate in their December meeting. Mortgage rates change with the 10 year treasury yield, inflation, supply and demand, and the secondary mortgage market.
The Impact of the Federal Reserve on Adjustable Rate Mortgages (ARMs)
Although fixed-rate mortgages are more popular in the U.S. residential financing market, there exists a small segment of Americans who opt for Adjustable Rate Mortgages (ARMs), which have variable interest rates resetting annually or semi-annually. The Federal Reserve's actions can have a more direct influence on these mortgages.
Specifically, ARMs often have their rates linked to the Secured Overnight Financing Rate (SOFR). Since the Federal Reserve's rate decisions are foundational for savings instruments, any increase or decrease in the fed funds rate can cause corresponding movements in the SOFR. Consequently, when the SOFR adjusts, ARM rates also adjust accordingly.
In practical terms, if the fed funds rate rises, your ARM rate will increase at the subsequent adjustment period.
What to Consider When Getting a Mortgage
No matter what the Federal Reserve is up to, if you want the best shot at getting a low mortgage rate, here's what you can do: keep your credit score solid, try to keep your debt down, put down as much cash upfront as possible, and don't settle for the first loan offer you see. (you can save money by shopping around)!
When you're checking out different rates, don't just focus on the interest rate. Look at the Annual Percentage Rate (APR) too. Some lenders might lure you in with a super low interest rate but then hit you with high fees. The APR gives you the full picture, including all those fees, so you know exactly what you're signing up for.
Contact Locations, Inc. for expert guidance in the residential housing market
