This week, the Federal Reserve raised short-term interest rates by a quarter point. In a sign of confidence, the Fed also upgraded its forecast for U.S. economic growth and unemployment this year. The Fed also indicated they will start gradually selling off the assets bought during and after the financial crisis to boost the economy.   So what does this mean for the mortgage market?  First, interest rates for mortgages are not expected to rise immediately, but a consensus of economists agree that the rates are likely to rise to approximately 4.5% by year end and potentially 5% by the end of 2018.  No one was surprised by this move, and economists predict that there will be one or two more increases before the year is out.

Sean Becketti, chief economist for Freddie Mac notes that 30-year fixed mortgage rates are still close to a seven-month low, “which is very good news for those potential homebuyers in the market and even those who may be looking to refinance.”  The average 30-year fixed-rate mortgage is now about 4.04 percent — up slightly from the record low of 3.50 percent in December 2012.

You should know that the the Federal Reserve’s action can affect today’s mortgage rates, but the Reserve does not actually set mortgage interest rates. Mortgage rates are determined by the price of mortgage-backed securities (MBS), a security sold on Wall Street.

The title image shows what a half percentage point can mean to a 30-year fixed mortgage of $200,000 in terms of monthly affordability and long term investment.