The quick answer is that the U.S. economy, and other economies around the world are doing better than expected. But more on that later. For now, let’s look at the U.S.

Mortgage brokers closely followed the Federal Reserve’s decision making, and at its last meeting the Federal Reserve Open Market Committee (FOMC) voted to keep interest rates steady. But the hint for future rate increases came as a relief, believe it or not. What gives? And what should Orion’s clients know about the Federal Reserve’s actions, or lack of actions?

In general, rates tend to increase when our economy is doing well, and decline when our economy is not. Since the depths of the “Financial Crisis,” and since the last in crease, concerns about a slowing economy and a looming U.S.-China trade war caused the central bank to rethink course. The Federal Reserve, aka Central Bank, does not set mortgage rates. It is best known for setting the overnight Fed Funds rate, and buying billions of dollars of Treasury and mortgage-backed securities (MBS), but the same factors that prompt the Fed to change the overnight rate impact other interest rates, including mortgage rates.

Rate reductions spell a reprieve in escalating borrowing costs (e.g. mortgage, home equity loan, credit card, student loans, car payment, etc.). Long-term fixed mortgage rates are generally pegged to yields on U.S. Treasury notes, and mortgage rates are already substantially lower since the end of 2019, and although they’ve moved up to where they were in June of 2021, they are still low by historical standards. (Orion’s rates are still surprisingly good.)

But for smaller things, like credit cards or auto loans, there may not be a material effect of any rate move, when it eventually comes. For example, a quarter-point difference on a $25,000 loan is $3 a month. In regard to student loans, it depends. While most student borrowers rely on federal student loans, which are fixed, more than 1.4 million students a year use private student loans to bridge the gap between the cost of college and their financial aid and savings, which may be fixed or may have a variable rate tied to the Libor, prime or T-bill rates.

As a result of the increase in interest rates since the September Fed meeting, savings rates that banks pay consumers on their money haven’t moved much. Remember that until rates fell last year due to the pandemic, the Federal Reserve had been increasing its benchmark rate since 2015. If rates move higher, in layman’s terms, saver scan now earn more on their savings than the current rate of inflation.

Considering the above, you should be able to see how important it is to stay abreast of Fed decisions and how they impact your client’s personal finances as we begin October, and any time. Which is the reason Orion’s management and AEs stay abreast of the latest news from the Fed and from the bond markets. Interest rates aren’t the only factors involved in financing your client’s home, but they are important.

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