Will the Feds Raise the Interest Rate in 2021?

If you’re considering a mortgage, mortgage interest rates are probably at the top of your mind. Securing a low mortgage rate means you’ll wind up paying less to your lender over time. And while mortgage rates aren’t the only factor to think about when purchasing a home, they’re an important one that can impact your finances for a long time.

Still, one of the questions home buyers ask most often doesn’t concern the mortgage rate all, but the federal interest rate set by the Federal Reserve. Homebuyers want to know, “Will the Federal Reserve raise the interest rate in 2021?”

No Rate Hikes on Short-Term Loans During the Recovery

For the time being, the short answer to this question is, “Probably not.” 

The Fed has kept interest rates low since the start of the COVID-19 pandemic to make borrowing more accessible to both consumers and businesses. A low rate makes short-term loans more affordable, which in turn makes it easier for people and businesses to acquire the things they need. This type of spending is important for getting the economy back on track.

On March 17th, CNBC reported that the Federal Reserve “sharply ramped up its expectations for economic growth but indicated that there are no interest rate hikes likely through 2023 despite an improving outlook and a turn this year to higher inflation.” The Fed typically raises interest rates to bring inflation down when the economy is moving too fast, but in this case, they are prioritizing the economic recovery instead.

The Federal Open Market Committee, a policymaking committee within the Federal Reserve System, also voted to keep short-term borrowing rates near zero and committed the central bank to buy back at least $120 billion worth of bonds per month. Buying back bonds increases the money supply in the economy.

So, what does this mean for your mortgage? 

The Fed Rate is Not the Mortgage Rate

The Fed rate is an indirect factor in how mortgage rates are generated because it has implications for the entire economy, but the Fed rate is not the mortgage rate. Put simply, the Federal Reserve doesn’t set mortgage rates at all. 

The Fed’s decisions might directly change the interest rate you have on your savings account, your CD (certificate of deposit) account, and the interest you pay on your credit cards, but they don’t directly change the mortgage rate.

Fixed-rate mortgages are instead tied to the 10-year Treasury rate, which investors use as an indicator of the country’s overall financial health. The 10-year Treasury rate is also an indicator of investor confidence.

Mortgages are also determined by other factors, many of which are outside your and the government’s direct control. That’s because mortgage rates are mainly driven by market forces like supply and demand.  

Still, there are a few things you can do to get a better rate when you apply for a mortgage. Paying off debt to improve your credit score is perhaps the best way to get a better mortgage rate. You can also put more money down for the property at the time of sale. If you’re patient, you can even wait until more favorable market conditions arrive to take out a mortgage and secure a better rate.

Achieve Your Real Estate Goals with GoldCoast Mortgage

Another way you can get a low-interest rate is by shopping at different lenders and banks. This can be a painstaking process if you do it on your own. That’s why GoldCoast Mortgage provides clients access to a broker platform where they can shop the financial marketplace and find the best possible rate on their mortgage.

Contact GoldCoast Mortgage today to learn more about getting a great rate on your mortgage.