The Fed raised interest rates again — here's what to expect for mortgages

While the Federal Reserve paused interest rate hikes in June after 15 months of increases, the Fed has increased interest rates once again. 

Its federal funds target rate range is now at a 22-year high of 5.25%-5.50%. While savers may continue to benefit from high rates, borrowers could once again see higher prices on their loans and lines of credit.   

Luckily, the Fed has also signaled that it's reaching the peak of the current interest rate hike cycle — a welcome break for borrowers, even if the most recent increase has a near-term effect. If you're on the market for a new home today, it's even more important to understand how mortgage rates could move over the next few weeks or months, since a loan that size can affect your financial situation for decades to come. 

Find out what mortgage rates you can qualify for today now.

What to expect for mortgages after another rate hike

The good news for homebuyers is that there may be little effect on current mortgage rates after the most recent rate hike. 

"A 25 bps hike should not meaningfully impact mortgage rates," says Al Faber, CFP, senior wealth manager at Woodson Wealth Management. 

It's important to note that mortgage rates aren't directly tied to moves made by the Fed. While they are influenced by the Fed's interest rate moves, a number of factors influence mortgage rates at any given time — including financial markets, inflation, Treasury yields and more, in addition to your individual application details.

Still, it's possible that there is a slight bump in rates — which sit between 6% and 7% APR on average as of July 26, 2023. 

"Another Fed rate hike may cause mortgage rates to slightly increase," says Jake Northrup, CFP, founder of Experience Your Wealth, but he predicts that any uptick will be minimal. 

"The market is forward-looking and expectations are that the Fed will be done with increasing rates in the near future," Northrup says. "Mortgage rates peaked in October 2022 when the Fed Fund rate was around 3% and mortgage rates are currently lower than October 2022, even though the Fed Funds rate is around 5%."

Compare current mortgage rates you can qualify for here!

What you can do if you're considering a mortgage today

Mortgage rates on the whole may be high today compared to what they were over the past few years. But experts we've spoken to recently agree that homebuyers can benefit from continuing their search now, rather than waiting for a potential mortgage rate drop. 

So, while you may not be able to control whether mortgage interest rates rise or fall this year, there are some actions you can take to ensure you score the best rate possible.

Start by implementing good credit habits and checking your credit score before you apply. The best rates generally go to applicants with the best credit, so getting your credit in order is a great way to guarantee top mortgage rates. Also make sure not to apply for any loans or credit cards shortly before applying for your mortgage, since doing so can temporarily affect your credit.

You'll also want to shop around with different lenders to find your best available rate. See the terms you can prequalify for to get an idea of your interest rate and monthly payment. Just make sure to apply for the same loan type and with the same details with each lender to get an accurate comparison.

Start your search here with today's best mortgage rate options.

The bottom line

While the Fed's most recent rate hike could lead to higher interest rates in the near future, it's just one piece of a larger puzzle for mortgage lenders. Plus, the Fed's signals toward a slowing of interest rate hikes could mean this increase has little effect over the long term. If you're in the market for a new home today, rely on actions you can take to score a better rate — including shopping around for the best rate and improving your credit as best you can before applying.