NEW YORK – The Federal Reserve this week increased the federal funds rate by a quarter percentage point, its first move since lowering the rate to zero in December 2008. The last time the Fed increased the rate was in January 2006.
What does this mean for those looking to buy or refinance a house?
"Rates on adjustable-rate mortgages will react quickly to any rise in the fed funds rates," writes MSN's Janna Herron. "That’s because the rates on ARMs typically are tied to the prime rate or LIBOR, both of which closely track the Fed rate.
"But rates on the most common mortgage — the 30-year fixed — will rise gradually. That rate follows the yield on the ten-year Treasury note, which usually moves in the same direction as the fed funds rate, but not in lockstep. The same goes for the 15-year fixed home loan, a popular refinance choice."
Real Estate Center Chief Economist Dr. Jim Gaines said consistent rate hikes over time by the Fed could eventually price some buyers out of the market. The subsequent reduced demand could slow home price growth.
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