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Home Buying

What the Fed Interest Rate Hikes Mean for Home Buyers, Owners and Sellers

In its fight against crazy high inflation, the Federal Reserve (aka the Fed) raised interest rates for the fifth time this year—boosting rates in September by three-quarters of a percent.1

That’s a big deal for people who want to buy a house. Because when the Fed raises rates, it usually means mortgage interest rates go up too. And that’s exactly what has happened in 2022, as mortgage rates have doubled from around 3% in 2021 to over 6% now.2

In fact, in September, 30-year mortgage rates hit 6.7%—the highest they’ve been since 2007.3

But if you’re like most people, you may have some questions about what’s happening—like, “How do Fed interest rates affect mortgages?” or “When will the Fed raise interest rates again?”

Great questions! Let’s get you some answers. We’ll walk through what the Fed does and how its rate hikes affect the housing market.

What’s the Federal Reserve?

The Federal Reserve is the U.S. central bank that creates money and sets interest rates. The Fed’s main goal is to keep the economy running smoothly by having low unemployment and low inflation.

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The Fed is kind of like a mechanic tinkering around with a car to make it purr like a kitten. And one of the Fed’s favorite tools is interest rates. (It’s been using that tool a lot lately.)

Why Is the Fed Raising Interest Rates?

The Fed has raised interest rates five times in the last year to fight inflation that has topped 8% in 2022. That’s the highest inflation has been since the 1980s. The Fed’s target is a 2% inflation rate, so they have a long way to go. Because of this, they plan to raise rates two more times this year. (The next Fed rate meeting is November 1.)

The goal of raising interest rates is to encourage people to borrow less, spend less and save more—which should slow down inflation.

Just a quick note here: The Fed doesn’t tell commercial banks what interest rates to charge on loans, but they influence rates by setting the federal funds rate. The fed funds rate is the interest rate banks charge to each other for overnight loans, and it influences most other interest rates.   

So even though the Federal Reserve doesn’t actually set mortgage interest rates, its decisions can still affect your mortgage—and it can impact other areas of your finances.

Mortgage rates went up in early 2022—even before the Fed started raising rates. That’s because banks saw what was coming and started upping interest rates to protect their own bottom lines.

So how do these rate hikes affect your bottom line? Let’s take a closer look.

How Do Federal Interest Rate Hikes Affect Home Buyers and Home Sellers?

Interest rates don’t just impact this year’s real estate market. They impact real people like you. Here’s what rising interest rates mean for home buyers and home sellers.

Home Buyers

High interest rates cost home buyers more interest in the long run. And a mortgage lender will lend you less because higher interest rates increase your debt-to-income ratio. So that means you’ll have less buying power when you’re shopping for a house.

Let’s see how this plays out for two couples.

Both couples bought $350,000 houses with 20% down and 15-year fixed-rate mortgages. (We recommend a 15-year mortgage because you’ll pay much less in interest over the life of the loan.)

So, Jim and Donna bought their house in October 2021, when the average interest rate was 2.31%.4 Bob and Cheryl bought their house a year later—after the rate rose to 6%.5

We used our mortgage calculator to see what both couples will pay for their houses. To keep things simple, we left out costs for property taxes, homeowners insurance and HOA fees.

15-Year Fixed-Rate Mortgage

Jim and Donna’s House

Bob and Cheryl’s House

Home Value



Down Payment



Loan Amount



Interest Rate



Monthly Payment



Total Interest Paid



Total Cost



Bob and Cheryl will pay $93,731 more in interest than Jim and Donna—even though their home value and loan terms are the same. Plus, Bob and Cheryl’s house payment is $521 more per month. Ouch!

Should You Buy a House Right Now?

High interest rates can be hard to swallow. But does that mean you shouldn’t buy a house? It depends on your situation.

If you like where you live—or you can tolerate it for another year or two—you may decide to buy after interest rates go down. Remember, the housing market changes constantly. While rates are up now (and will probably keep rising while the Fed tries to get inflation under control), these spikes won’t last forever.

But for those who are truly ready to buy a home, you may not want to wait. That’s okay. The housing market should inform your decisions—not make them for you. If you plan carefully, you can still buy a home.

Our rule of thumb is to make sure your mortgage payment (including property taxes, insurance and HOA fees) is 25% or less of your take-home pay. If you’re a first-time home buyer, make sure you’ve saved enough to make at least a 5% down payment. A 10% down payment will give you more buying power, and 20% is even better because you can avoid paying private mortgage insurance (PMI).

Or—better yet—pay 100% cash for your home. Then you never have to worry about interest rates!

Home Sellers

Have you ever seen a nature documentary where a bunch of wildebeests need to cross a river, but they don’t want to jump in? That’s because wildebeests are smart. They know there are crocodiles in the river, and they don’t want to get eaten.

That’s sort of how home buyers feel right now. Even though they want to buy a house, many are reluctant (or unable) to pay those high interest rates. Fewer buyers can make your house harder to sell.

Should You Wait to Sell Your House?

You can wait if you want to. But if you’re ready to sell your house, go for it. Some buyers may back out of the market, but others are ready to dive in. Focus on doing things to attract them and help your house sell faster.

For example, you can stage your home better, get honest about the real reasons buyers aren’t interested, and avoid home-selling mistakes like asking too much or hiring the wrong real estate agent. Finally, be patient and trust your real estate agent to bring you the right buyers at the right time.

Finding a Good Real Estate Agent

Whether you’re buying or selling a home, you need an expert real estate agent who knows the market in your area. That’s why we created the Endorsed Local Providers (ELP) program.

The ELP program helps connect you with top-performing, local real estate agents. These pros are on a mission to serve you—even if it means less money in their pockets. They’re RamseyTrusted because they put you first. Period.

Find a RamseyTrusted real estate agent today.

How Do Federal Interest Rate Hikes Affect Mortgage Borrowers and Current Homeowners?

Okay, we’ve talked about home buyers and sellers. But what if you already have a mortgage? Do changing interest rates affect you too?

They can! We’ll explore how the Fed’s decisions affect current homeowners who have these types of mortgages: fixed-rate conventional loans, ARMs, HELOCs and refinances.

Fixed-Rate Conventional Loans

Good news for you: Your interest rate won’t change, and neither will your monthly mortgage payment! (You can breathe now.)  

While the Federal Reserve’s rate hikes won’t affect your home loan, you will feel the pain if you take out other loans (like a car loan). That’s because lenders are raising interest rates on most loans—not just mortgages.

It’s also another reason why we tell people to stop taking on new debt—and get rid of debt they already have! No debt equals no interest.


With an ARM, or adjustable-rate mortgage, your lender raises or lowers your interest rate—and in turn, your monthly payment—based on an index interest rate (this rate changes constantly and is tied to a bunch of market conditions).

So, if the Fed raises the federal funds rate by 0.25% and other rates follow suit, your rate will probably go up 0.25% too. (Good luck getting it back down.)

Many ARM lenders adjust interest rates every six to 12 months. The (sort of) good news is you may have a few months before your lender changes anything. But that’s not really great. Your lender could wait for the Fed to raise rates a couple of times, then hit you with a huge increase.

Don’t wait for your lender to raise your rate. Refinance to a fixed-rate 15-year mortgage to give you and your family some financial breathing room. (More on that in a minute.)  


A HELOC (or home equity line of credit) works like a credit card, where you borrow money and pay back a little at a time. The difference is, you’re borrowing against your house . . . so if you can’t pay what you owe, the lender can take your home.

That’s scary. But it gets worse. Most HELOCs have variable interest rates—and they can change more often than ARM rates. So anytime the Fed sneezes, your rate will go up.

Talk about stressful! If you’ve got a HELOC, you need to ditch it ASAP. Pay it off if you can—if not, refinance to a 15-year fixed-rate mortgage.


Okay, so you’ve probably noticed a theme: We only recommend 15-year fixed-rate mortgages. Why? Because they’re the cheapest mortgages you can get, and you can pay them off faster.

Why Is Paying Your House Off Early Good?

Let’s pause and clear this up right quick: Lenders say paying off your home early is bad because they want to keep charging you interest. But in reality, paying off your house early is good.

Think about it: How much money do you spend on your mortgage each month? Now imagine getting to keep it. You could take your dream vacation or pay for your kids’ college. You could buy Christmas presents for hundreds of kids in need. Without a mortgage, you have money to meet your needs and be outrageously generous. (Plus, the grass just feels different when you own it.)

That’s why we recommend 15-year fixed-rate mortgages—so you can live like no one else. If you don’t have a 15-year fixed-rate mortgage, you might want to consider refinancing.

Should You Refinance?  

There are times when you should refinance and when you shouldn’t. For example, let’s say you recently got a 15-year fixed-rate mortgage. It’ll probably be hard to get a lower interest rate during the Fed rate hikes. Since you’ve got a good thing going, just keep rockin’ it.

You’ll also want to avoid cash-out refinances now and forever. With those, you’re just taking on more debt—and it’s never a good time for that.

But a regular refinance could be helpful if you can get a shorter loan term and lower interest rate or switch from an adjustable-rate loan to a fixed-rate loan. Then you won’t have to worry about how the Fed interest rate spikes will affect your mortgage payment.

If you have a 30-year mortgage with a fixed rate much lower than current 15-year mortgage rates, it doesn’t make sense to refinance. Instead, just make it a goal to pay off your 30-year mortgage in 15 years.

Taking Control of Your Mortgage

The most important thing you can do to deal with federal interest rate hikes is to take control of your mortgage—and your money. The government won’t save you. If anything, they’ll make your mortgage situation worse.

See, the Federal Reserve tries to stabilize the economy with debt, but debt makes people’s lives more unstable. (Just look at our 2022 State of Personal Finance Report to see for yourself.) The truth is, debt sucks—and you don’t need it. You also don’t need the government’s bad money decisions ruining your dreams of homeownership.

You can pay off your mortgage and get financial peace when you follow a proven money plan that actually works. It’s called the 7 Baby Steps. You can take back your life. You can be the hero in your story!

And you can put the right team of people around you to help make that happen. Not the government—they can’t find their butts with both hands. We’re talking about people who can actually help.

Work With a Mortgage Lender You Can Trust

While it’s smart to get the lowest possible interest rate on your mortgage, that doesn’t mean you have to wait years to buy or sell a house—or to refinance if your current loan just isn’t working for you. You get to make decisions based on what’s right for you and your family, not what the Fed is doing.

Work with a smart mortgage lender who actually wants you to get the best mortgage for you. Our friends at Churchill Mortgage will help you find a home loan that works with your budget and puts you on a path to pay off your house fast.

Talk to a RamseyTrusted mortgage expert at Churchill.


Ramsey Solutions

About the author

Ramsey Solutions

Ramsey Solutions has been committed to helping people regain control of their money, build wealth, grow their leadership skills, and enhance their lives through personal development since 1992. Millions of people have used our financial advice through 22 books (including 12 national bestsellers) published by Ramsey Press, as well as two syndicated radio shows and 10 podcasts, which have over 17 million weekly listeners. Learn More.

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