The Difference Between Federal Interest Rates and Mortgage Rates

Fed Rate Hike Impact on Mortgage Rates, by NAR Chief Economist Lawrence Yun in The Federal Reserve will raise interest rates this year and continue to do so throughout next year. This act, however, does not automatically guarantee a proportionate rise in mortgage rates for consumers. Let’s take a look at why this is the case. The following chart from the year 2000 to 2015 compares what the Fed directly controls, which is the short-term federal funds rate, to the long-term 30-year fixed mortgage rate. There appears to be some influence in direction between the two rates but certainly not a large one. There is also movement in mortgage rates on their own, even when there are no changes to the fed funds rate. Full article posted on the Research page under #realtor #realtorproblems #sold #realestate #hgtv #openhouse #closing #home #realty #hardwork #inspiration #business #homes #realestateagent #homeowner #buyers #homebuyer #homesearch #buy #real #selling #dream #renters #rent #buyer

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Yesterday, the Federal Reserve announced that it will raise interest rates. This was just a few days after we posted our recent market report. In it, we discussed how housing affordability should continue locally, despite rising prices, due to our strong job market and historically low interest rates.

While higher interest rates would make homes purchased with a mortgage more expensive, Dr. Lawrence Yun, Chief Economist at the National Association of REALTORS®, explained why this recent rate increase doesn’t mean home buyers will see an immediate change in purchasing power — spoiler alert — it’s because interest rates and mortgage rates are not the same:

“This [rise in interest rates…] does not automatically guarantee a proportionate rise in mortgage rates for consumers… There appears to be some influence… between the two rates but certainly not a large one…  Long-term mortgage rates are guided by market forces [like] the inflation rate and the erosion of the purchasing power of money, the global reserve currency status, the budget deficit and debt, household savings rate, corporate borrowing enthusiasm, printing of money, the degree to which the government will guarantee mortgages, and a host of others. It all comes down to the supply and demand of mortgage funds against alternative investment choices…  Moreover, rates are rising for good reasons: an improving economy and job additions. Therefore, consumers can absorb slightly higher rates and the housing market should be just fine.”

In some ways, it’s like explaining the difference between your buyer’s APR and their mortgage rate when they’re like, “Wait, why are these different?” While that’s another topic entirely, when you and your lender partners are able to explain the differences in the rates your buyers will encounter when purchasing a home, they’ll feel more confident about their financing decisions.

Keep an eye on our blog, as well as the National Association of REALTORS® Research page, for more information about how the increase in interest rates and other changes in the economy, are impacting the real estate industry.


  1. […] caused concern that mortgage rates would soon follow. Economists were quick to remind everyone that many factors determine where mortgage rates go, in addition to the federal interest rate. Case in point, days after the interest rate increase was […]

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