How Rising Fed Interest Rates Affect Home Buyers, Homeowners

This article was first published on NerdWallet.com.

What the Federal Reserve did and why

The Federal Reserve raised a bedrock interest rate on Wednesday. As a result, mortgage interest rates probably will go up, and rates on home equity lines of credit certainly will.

The Fed raised its target for the federal funds rate by 0.25%, or one-quarter of a percentage point. Other interest rates are built atop the federal funds rate, most notably the prime rate often charged on corporate loans by large banks. It, too, will rise 0.25%.

Fed interest rates are moving higher as an inflation-fighting measure.

"It is our job to get inflation down to 2%," Fed Chair Jerome Powell said at a news conference after policymakers met in January.

With inflation running significantly higher than the central bank's target, the Fed is expected to raise the federal funds rate multiple times this year. The rate started the year near 0%, and traders in federal funds futures are betting that it will end the year above 1.5%, according to the futures market's CME FedWatch Tool.

How the Fed rate increase affects home buyers

Mortgage rates are likely to rise because they tend to move in the same direction as the federal funds rate. With the anticipated increases, mortgage rates could trend upward all year.

If you have already signed a contract to buy a home and have locked an interest rate, you're in good...