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Mortgage Interest Rate Trends In Late 2023

November 6, 2023

Mortgage Trends

In the last quarter of 2023, the Fed paused its interest rate hike campaign. First-time home buyers sometimes ask whether that means a pause on changes to FHA home loan interest rates. The short answer is no, and we’ll explain why below.

Fed Rate Hikes Versus Home Loan Interest Rates

The first thing to know?

The Fed does not directly control mortgage rates but its actions do affect them less directly. Fed actions to increase rates are aimed at the lender side of the operation; when it pauses rate hikes, the Fed is putting increases on hold that affect how much it costs a lender to loan you money.

The lender’s increased costs are passed on to the consumer through higher mortgage rates.

What It Means When The Fed Pauses The Rate Hike

When the Fed pauses rate hikes, that is a pause in only one aspect of how home loan rates are set by the lender and offered to the consumer.

But more factors may change your lender’s rate offer, including your FICO scores and other variables/ that won’t change in the meantime.

So yes, your home loan rate may go up or down depending. You have the option to buy down the rate and work on your FICO scores to raise them higher before applying. Your FHA lender can offer you a more competitive rate if you qualify.

What To Do With This Information

Not sure how all this affects your home loan transaction? Try asking a participating FHA lender how Fed rate hike policies affect your loan. if you are still unclear on how your home loan interest rate offer works.

The Fed still has two more opportunities to raise mortgage rates in the short term. And while some may believe such inflation control measures seem to be helping, the pause in rate hikes does create some confusion for first-time home buyers who might not be sure what this move means or how it affects them.

Why The Fed Adjusts Interest Rates

Investopedia answers this question by reverse engineering the answer, asking how the Fed handles rates when economic times are good. Why cut interest rates or modify them at all?

“The theory is that by cutting rates” offered to banks lending money, “borrowing costs decrease, and this prompts businesses to take out loans to hire more people and expand production.” 

When economic times are like they are now, Investopedia says, “The logic works in reverse when the economy is hot,” meaning “an increase in interest rates sends the price of bonds lower…rates rise,” which means consumers are “also less likely to borrow or refinance existing debts, since it is more expensive to do so.”

FHA Loan Interest Rates Versus Fed Rate Hikes

The Fed’s pause on rate hikes does NOT mean FHA loan interest rates will no longer change. Mortgage loan rates are affected by various factors, including the Fed rate, but also other variables including investor reactions to daily financial market developments, breaking news, and more.

Joe Wallace - Staff Writer

By Joe Wallace

Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.

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