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Will Mortgage Rates Rise Following the Latest Fed Rate Hike?

If you're looking to buy a house, here's what the Federal Reserve's most recent rate means for you.

A photo illustration of a calculator, mini-house, keys and a spreadsheet for calculating a mortgage
Witthaya Prasongsin/Getty

This story is part of Recession Help Desk, CNET's coverage of how to make smart money moves in an uncertain economy.

The Federal Reserve raised its benchmark interest rate for the fourth time this year on Wednesday, increasing its federal funds rate by three-quarters of a percentage point and marking one of the largest rate hikes in the last three decades.

Whenever the Fed raises rates, it makes borrowing money more expensive for everyone – including prospective homebuyers. Even though the benchmark interest rate doesn't directly impact mortgage rates, interest rates on home loans rise and fall in response to economic conditions, as well as Fed policy. This means there's a possibility mortgage rates may begin to increase again, just as they have with each of the Fed rate increases this year. 

Here's what you need to know about how the latest interest rate hike impacts buying a house and whether or not it will make it more expensive for you to secure a mortgage.  

Will mortgage rates keep climbing?

If you're looking to buy a home, the Fed's interest rate hike means you may be contending with even higher mortgage rates. The Fed is already expected to raise rates a couple more times this year, which means mortgage rates could jump higher. Even if rates seem high now, they're still relatively low historically – if you're home shopping, now may be the best time to lock in a lower rate. 

For example, let's say you're looking to buy a $500,000 house right now at a 5.70% interest rate with 20% down. Your monthly mortgage payment would be approximately $2,900 with a 30-year fixed-rate home loan, and you would pay $544,721 in interest over the lifetime of your loan. 

But if mortgage rates rise to 6%, your monthly payment would then go up to $3,000 and you would pay $597,191 in interest over the lifetime of your loan. That's a difference of $52,470 in interest payments. 

"Affordability is the biggest issue in the housing market today, and higher rates will make that worse on a monthly basis, even as the Fed does the important work of slowing down price growth," Skylar Olsen, chief economist at Zillow, said in a statement. 

What happens next may hinge on inflation 

The housing market has already factored the Fed's latest rate hike into its expectations, so mortgage rates could remain relatively stable and not spike in response. 

"It is possible that the 30-year fixed mortgage rate may settle down at 5.5% to 6% for the remainder of the year," Lawrence Yun, chief economist at the National Association of Realtors, said in a statement.

But, whether or not the Fed gets inflation under control -- an action it has not yet been able to accomplish -- will offer more insight into where mortgage rates may go in the future.

"I think mortgage rates are going to be pretty flat," said Daryl Fairweather, chief economist at Redfin, a real estate brokerage. "But it really does depend on what happens in the economy, and if inflation proves to be more persistent, I would expect mortgage rates to go up. If inflation starts to dissipate, I would expect mortgage rates to go down."

So, should you wait to buy a house? 

Without clarity on what's next for rates, how can you decide if now is the right time to buy?

Buying a house is one of the most important financial decisions you'll ever make. You have to take into your personal financial situation and not just what's happening with the economy or the housing market. That said, home price increases are still seeing double-digit growth but are finally showing signs of slowing down.

As buying slows in response to higher mortgage rates, fewer people look to buy homes. With less demand to buy, more inventory could become available and stay on the market longer. This could offer you the opportunity to get more particular when home shopping, since there may be more choices available. Less competition also puts less pressure on home prices. 

"I think prices are going to come down slightly in the coming months to account for the higher mortgage rates that make buying a home more expensive," Fairweather said. 

Still, if you're buying a home in 2022, you're paying a premium. A homebuyer will now pay almost 50% more for the same property compared with a year ago, according to Realtor.com, so there's a lot to consider.

Ultimately, no matter what price you pay or mortgage rate you lock in, the most important aspect of buying a house is making sure you can afford your monthly payments while still being able to comfortably afford your everyday needs.