For active investors there is always one eye on the markets. Well, most usually there is and the talk ultimately centers on what the Fed will do or what the Fed won’t do. We even talk about it here on several occasions because the cost of money does indeed affect the cost of borrowing. As it relates to Prime Rate to Movemortgage rates for real estate investors holding for the long term have no doubt opted for the fixed rate program, locking in low cost financing for the life of the loan.

 Yet mortgage rates are proactive, not reactive with regard to Fed moves and mortgage backed securities have already priced in at least an initial rate increase by the Fed by at least 0.25%. That means even if the Fed did indeed raise the Fed Funds rate next week by a quarter of a percent, fixed rates might not react as one might initially think. Instead, those who buy and sell mortgage bonds which directly impact fixed rates are looking for another rate move by the Fed and trying to figure out exactly when that next change will be. If traders think there will be another rate increase in October, then rates should move up by an appropriate amount.

However, for investors with larger loan amounts used to acquire multi-family units and apartment buildings, most financing choices are adjustable rate loans, tied to a specific index. For example, loans tied to the Wall Street Journal’s Prime Rate, the index will increase by the same amount the Fed makes for the Fed Funds rate. Even if the Fed only increases the Fed Funds rate by 0.125%, as a few have suggested, adjustable rates will move accordingly. Any Fed move will immediately impact adjustable loans, while those with fixed rates have already priced the increase in today’s rates.