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Mortgage Rates, Inflation and The Fed 101

The Fed raises the prime rate and mortgage rates go down. The Fed lowers the prime and mortgage rates go up. Confused yet?? We reached out to the experts at Gulfside Mortgage to get the 411 on interest rates, where they’re going, and where they’ve been.

Fed Prime Rate VS. Mortgage Rates

Recently, the Federal Reserve raised the prime rate (Fed funds rate) .75%, making it more expensive for banks to borrow. The banks in turn pass that cost onto consumers.

Mortgage rates are not based on the prime rate, but can go up when the prime rate is raised. Prime rate directly affects shorter term lending like: credit cards, car loans and HELOC’s - a home equity line of credit.

We don’t know what the Federal Reserve hike amount will be so it may get WORSE or BETTER!

The Friday & Monday coinciding with the rate hike were some of the worst days for mortgage rates in the past twenty years. Inflation numbers reported worse than expected and it spooked the markets. At one point, Mortgage Backed Securities were down more than 160 basis points!! That is MASSIVE!! Movement like this hasn’t happened this fast since 1994. Inflation and Fed inaction are causing rapid rate increases.

What does that mean? Unfortunately, that means if you were quoted a 5.5% that Friday, 30 yr. rates are now 6.25% or higher. We got a little spoiled with rates so darn low. But I’m sure a few can remember when they were much higher. I remember the rate on my first home was 6.875% and we were happy to get it!

The shortage of available homes versus human beings needing a home will continue to drive home values. This is not a repeat of the housing crash!! It’s not the time to step back from buying. You’re going to pay someone’s rent, choose if it will be to yourself or someone else’s. We all have to pay for housing. And rent is going up everywhere. It’s still better to buy than rent for most. Interest rates can be refinanced in the future if a drop occurs.

Finally, if you were pre-approved a few weeks ago, make sure you reach out to us. You may not qualify for as much as you qualified for, even if you were recently pre-approved. Call us to update your pre-approval and see what options will work best for you. We are all in this together! Know your options.

941-485-4222 |

The above is from July 8th and as you can see the rates have been improving since then based on the MBS “Mortgage Backed Security” Chart below.

The rates on the 10Y UST “US Treasury Bond” has also been improving since June 14th

There are two markets that actually control the long term interest rates. Those are “Inflation” and US Deficit.

High inflation causes interest rates to increase and that is why the rates are so high now. The US deficit is also at record highs and once inflation slows we will see the interest rates start to drop, maybe as quick as they went up.

MBS Chart
US Treasury Chart

US Deficit vs Interest Rates – as you can see the rates have always increase as deficit lowered and interest rates decreased as the deficit increased. This is for all countries and currently the US is at the highest deficit it has ever had -

Chart 1 showing Debt Increasing related to Interest Rates declining
Chart 2 showing Debt Increasing related to Interest Rates declining

Let Us Know How We Can Help.