04
Apr
By First Rate Financial Group
Mortgage Rates

Understanding the Role of the Federal Reserve in Mortgage Rates

When you’re thinking about buying a home, you may hear a lot about mortgage rates going up or down. But have you ever wondered what causes these changes? One of the biggest influences on mortgage rates is the Federal Reserve, often called “the Fed.” While the Fed doesn’t set mortgage rates directly, its policies play a major role in how much you’ll pay for your home loan. Let’s break it down in simple terms:

What is the Federal Reserve?
The Federal Reserve is the central bank of the United States. Its main job is to keep the economy stable by managing inflation, employment, and interest rates. Think of the Fed as the “guardian” of the economy, adjusting financial policies to keep things running smoothly.

How the Fed Influences Mortgage Rates
The Fed doesn’t set mortgage rates directly. Instead, it controls something called the federal funds rate, which is the interest rate banks charge each other to borrow money overnight. Changes in this rate have a ripple effect on other interest rates, including those for mortgages.

Here’s how it works:

  • When the Fed raises rates – Borrowing money becomes more expensive for banks, and they pass that cost onto consumers in the form of higher mortgage rates.
  • When the Fed lowers rates – Borrowing becomes cheaper, and mortgage rates often decrease, making it more affordable to buy a home.

Why Does the Fed Raise or Lower Rates?
The Fed adjusts rates based on the overall health of the economy.

  • If inflation is high – The Fed raises interest rates to slow down spending and borrowing. This helps bring inflation under control but can make mortgage rates higher.
  • If the economy is struggling – The Fed lowers rates to encourage borrowing and spending, which can lead to lower mortgage rates and make homeownership more affordable.

How Fed Decisions Affect Homebuyers
Since mortgage rates influence your monthly payments, even a small increase can mean paying thousands more over the life of your loan. Let’s look at an example:

  • A $300,000 loan at 3% interest – Monthly payment: approximately $1,265
  • A $300,000 loan at 6% interest – Monthly payment: approximately $1,798

That’s a significant difference. Keeping an eye on Fed rate changes can help you decide when to lock in a mortgage rate.

Tips for Homebuyers in a Changing Rate Environment

  • Get Pre-Approved Early – Locking in a rate when they’re low can save you money.
  • Consider Adjustable-Rate Mortgages (ARMs) – If rates are high, an ARM might offer lower initial payments.
  • Work on Your Credit Score – The better your credit, the better the rate you’ll qualify for.
  • Talk to a Mortgage Professional – An expert can help you navigate the market and choose the best loan for your situation.

While the Federal Reserve doesn’t directly control mortgage rates, its decisions have a significant impact on the housing market. Understanding how the Fed influences interest rates can help you make informed decisions when buying or refinancing a home.

31
Mar
By First Rate Financial Group
Financial Reports

What’s Ahead For Mortgage Rates This Week – March 31st, 2025

With the introduction of tariffs on Tuesday, there is significant uncertainty across all sectors regarding the potential outcome. While important data releases—including the PCE Index, Personal Income & Spending, and Consumer Sentiment for the quarter—have taken place, their impact is expected to be largely overshadowed by apprehension surrounding the widespread tariff decisions.

With the upcoming release of inflation reports, including the CPI and PPI this week, all eyes will be on these two key metrics. The focus remains on tariffs and their impact on the markets, as well as inflation, which is likely to be influenced by the new tariff policies.

PCI Index

A separate measure of prices known as the core rate rose a sharper 0.4% in February, a tick above Wall Street’s forecast. The increase in the core PCE in the past year climbed to 2.8% from 2.7%. The core rate omits food and energy prices, which often jump up and down in the short run. It’s seen as a better predictor of future inflation.

Consumer Spending

Consumer spending rose a modest 0.4% last month, the government said, and rebounded from a decline in January. Economists surveyed by The Wall Street Journal had projected a 0.5% gain. Household spending is the main engine of the U.S. economy, but it appears to have sputtered in early 2025.

Consumer Sentiment

The final reading of consumer sentiment in March fell to a 32-month low, as more Americans than at any time since the financial crisis think unemployment will rise in the year ahead. The second of two readings of the consumer-sentiment survey fell to 57.0 from an initial 57.9, the University of Michigan said Friday.

Primary Mortgage Market Survey Index

• 15-Yr FRM rates saw an increase of 0.06% with the current rate at 5.89%
• 30-Yr FRM rates saw a decrease of -0.02% with the current rate at 6.65%

MND Rate Index

• 30-Yr FHA rates saw an increase of 0.03% for this week. Current rates at 6.18%
• 30-Yr VA rates saw an increase of 0.03% for this week. Current rates at 6.20%

Jobless Claims

Initial Claims were reported to be 224,000 compared to the expected claims of 226,000. The prior week landed at 225,000.

What’s Ahead

CPI and PPI are ahead next week as well as the tariffs, which are set to be in effect starting Tuesday.

26
Mar
By First Rate Financial Group
Mortgage

The Difference Between FICO Score and Credit Score: How It Affects Your Mortgage and Rates

When applying for a mortgage, your creditworthiness plays a significant role in determining your loan approval and interest rates. Two commonly referenced terms are FICO score and credit score, which are often used interchangeably but have distinct differences.

1. What is a Credit Score?

A credit score is a broad term that refers to a numerical representation of a consumer’s credit risk. It is calculated based on various scoring models, including FICO and VantageScore, and is derived from credit report data such as payment history, credit utilization, and length of credit history.

2. What is a FICO Score?

A FICO score is a specific type of credit score developed by the Fair Isaac Corporation. It is the most widely used scoring model by mortgage lenders. FICO scores range from 300 to 850 and are calculated based on five key factors:

  • Payment history (35%)
  • Amounts owed (30%)
  • Length of credit history (15%)
  • Credit mix (10%)
  • New credit inquiries (10%)

3. How Do They Affect Your Mortgage?

  • Interest Rates: A higher FICO score typically qualifies you for lower mortgage interest rates, while a lower score may result in higher rates or loan denial.
  • Loan Approval: Lenders often have minimum credit score requirements, and FICO scores are a primary factor in the underwriting process.
  • Loan Terms: Your score can affect down payment requirements and loan programs available to you, such as conventional, FHA, or VA loans.

4. Key Differences

  • Scope: Credit scores can come from various models, while FICO is a specific scoring model.
  • Usage: Most mortgage lenders rely heavily on FICO scores for risk assessment.
  • Impact: Your FICO score has a direct influence on mortgage rates and loan eligibility.

Understanding the distinction between a FICO score and a credit score is essential when preparing for a mortgage application. By improving your FICO score, you can increase your chances of securing better loan terms and lower interest rates.