Andrew Shilling at MarketWatch asked what likely Fed rate hikes later this year mean for mortgage rates. The honest answer is less than most homeowners think, and the confusion costs people real money.
I sit with homeowners every month who confuse what the Fed does with what their mortgage does. The Fed sets overnight rates, not your mortgage. A 30-year fixed rate is priced off the 10-year Treasury yield plus a spread, because the typical mortgage is paid off or refinanced in about seven to ten years. The 10-year moves on inflation expectations, growth expectations and what investors think the Fed will do over the next decade, not on what it did last Wednesday.
That is why the timing advice so many people follow is backwards. The bond market priced in the shift the moment the Fed's projections came out. Waiting for the news to hit is waiting for something that already happened. By the time the rate hike is announced, the mortgage market has usually moved on to the next question.
For a buyer, the useful question is whether the payment works at today's rate. For an owner considering a refinance, it is whether the spread between your current rate and today's rate covers the closing costs within the years you expect to stay. Neither answer depends on the Fed's next meeting.
Read the full article at MarketWatch →
