How the Federal Funds Rate Affects Your Mortgage Interest Rate

Ever wondered how the Federal Funds Rate affects your mortgage interest rate? With all the talk in the news about the Fed first raising rates incrementally over the last year and now set to cut rates multiple times in 2024, it may be a bit confusing how the Fed’s actions affect your future home purchase.

What is the Federal Funds Rate?

The Federal Funds Rate is essentially the master interest rate for the country. When the Federal Reserve adjusts this rate, it’s like they’re turning the volume up or down on the cost of borrowing money. Any adjustments to the Federal Funds Rate usually have a ripple effect on things like credit card interest rates and, of course, mortgage interest rates.

How Does the Federal Funds Rate Affect Your Mortgage Interest Rate?

Banks and lenders adjust their rates based on the government’s moves. If the Federal Funds Rate increases, mortgage rates will usually increase. Likewise, if the Fed cuts rates (as they’re expected to do in 2024) mortgage interest rates usually decrease. It’s not a one-to-one exchange, however. The Federal Funds Rate does not equal mortgage interest rates. They are just inextricably linked.

Interest Rates and Your Home Purchase

Savvy prospective home buyers understand how important interest rates are to the home purchase process. The lower your interest rate, the further your dollar will stretch, allowing you to get more home for your money. For some borrowers, their interest rate could be the difference between buying a home in their dream community or settling for a more affordable property. As interest rates ticked up in 2023, it forced many buyers to put their home purchases on hold. Were you one of them? If so, 2024 could be the year to finally make your dream of homeownership a reality!

What’s Ahead for Mortgage Interest Rates in 2024?

The Fed has signaled that it will begin cutting rates in 2024. Some news outlets have reported that the Fed will cut rates up to six times this year, while others cite a more modest amount of rate cuts. Regardless, you can expect that interest rates will creep down over the course of 2024, increasing your buying power.


Ready to take the next steps to buy a home in 2024? Partnering with the Potempa Team is the best way to ensure a smooth and seamless home purchase process. With over 70 years of combined experience, we can help you find the right loan product for your situation with the best interest rate. Click here to get started now!

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