Mortgage rates follow the bond market, not the Fed's announcement. Knowing the difference keeps you from reacting to the wrong headline.

When the Fed raises rates, the news covers it as one story about borrowing costs. Car loans, credit card interest, and mortgage rates all get mentioned in the same breath, and if you're planning to buy a home, that makes it sound like your loan just got more expensive overnight. Here's what we want you to know before a headline changes your plans.

There are two different rates. One is the federal interest rate, the number the Fed announces and the media reports on. The other is the mortgage rate you'd actually be quoted on a home loan, and the two don't move in lockstep.

Mortgage rates follow the bond market. They aren't immediately and directly impacted when the Fed raises the federal rate, because fixed mortgage rates track the 10-year Treasury yield instead of the Fed's overnight rate. Lenders also have the Fed's move built in well before it lands. They anticipate what the Fed will do and factor it into their mortgage forecasts, so by the time the announcement comes, much of it is already accounted for.

“Mortgage rates follow the bond market, not the Fed's announcement.”

What actually moves mortgage rates. If you're curious what has an immediate effect, it's unexpected economic news. Lenders can't build that into their anticipation and planning, which is why rates can shift on something nobody saw coming rather than on a meeting everyone had circled on the calendar.

There's no reason to worry or feel alarmed every time the Fed changes interest rates, because that move isn't always correlated with what happens to mortgages. What matters far more for your plans is where rates actually sit today and what that means for what you can afford on your next home.

If you have a question about where rates are and what your affordability looks like on a future purchase, reach out to us. We'd be honored to answer it and guide you through all the numbers. Call or text us at (651) 998-9829, email us at info@holzgroup.com, or visit holzlifestylehomes.com. We'd love to back your decision with real numbers.