Fed raises interest rates for first time in three years, what it means for Arkansas homebuyers

LITTLE ROCK, Ark. – The Federal Reserve raised its benchmark interest rate Wednesday by a quarter of a percentage point, its first rate increase in three years, as policymakers continue working to bring down stubborn inflation. The Fed’s benchmark rate now sits in a target range of 3.75% to 4%. For people shopping for a home, however, the increase does not automatically mean mortgage rates will rise by the same amount. Gabriel Womack, a local mortgage loan originator, said mortgage rates are influenced by broader financial markets and often reflect expectations about Federal Reserve decisions before they happen. “The Fed did raise its target rate by a quarter of a percent. But for consumers, what I think is good for them to know is that mortgage markets are forward-looking,” Womack said. That means Wednesday’s decision does not necessarily translate into an immediate quarter-point increase in mortgage rates. Still, even relatively small changes in mortgage rates can affect a buyer’s monthly payment. Womack said the median purchase price in the local market is around $270,000. At that price, a buyer could expect to pay about $1,600 a month in principal and interest, depending on the loan and interest rate. A quarter-point increase in the mortgage rate could add roughly $60 a month to that payment, according to Womack. That estimate covers principal and interest and does not include property taxes, homeowners insurance or other costs. For buyers, Womack said the most important question is whether the monthly payment fits comfortably within their budget. “I think a real world consumer needs to start with a monthly budget goal and just see if that’s realistic for them or if that change in interest rate is a deal breaker for them when they look at the real numbers,” he said. The Federal Reserve has also indicated another rate increase could come later this year, leaving some prospective buyers watching closely for changes in borrowing costs. But Womack said consumers should not assume the Fed directly controls mortgage rates. “What I really think that they should know is that the Fed does not control mortgage interest rates just because they increase or lower their rate. It doesn’t correlate exactly to mortgage interest rates,” he said. The Fed’s benchmark rate more directly affects short-term borrowing costs, including some credit cards and auto loans. Mortgage rates are influenced by longer-term market conditions and investor expectations. For people who are already shopping for a home or have been pre-approved for a mortgage, Womack recommends checking their numbers as rates change and focusing on a monthly payment they can afford rather than simply the maximum amount they qualify to borrow.