Bolster the Economy by Lowering Your Mortgage Rate

On December 16th, 2008 the Board of Governors of the Federal Reserve issued a statement announcing that:  ” …over the next few quarters the Federal Reserve will purchase large quantities of agency debt and mortgage-backed securities to provide support to the mortgage and housing markets, and it stands ready to expand its purchases of agency debt and mortgage-backed securities as conditions warrant.

This announcement represents an expansion of the Federal Reserves strategy for combating the current economic and financial issues facing the US economy. The new strategy involves the government purchase of mortgage backed bonds in an effort to lower mortgage rates and provide new money for the purchase or refinance of residential real estate. The goal is to provide homeowners with access to funds and to support the housing market by making loans cheaper and easier to get.

Following the Federal Reserve announcement in December mortgage rates began to fall rapidly. Private investors began purchasing mortgages backed bonds in anticipation of the Government making large purchases and pushing up the prices of these bonds. This has caused large sums of money to flow into the mortgage market pushing rates significantly lower in the span of a few weeks. Rates are near the lows of the Summer of 2003 with a conforming 30 year fixed mortgage now below 5%.*

Mortgage rates may continue to fall in the coming weeks and months as the Government and investors continue to invest money in the mortgage market.  However, as rates fall, private investors will become less likely to continue to move large money into mortgage bonds. This is because the potential return to private investors is decreased as rates trend lower and at some point Government will have achieved its goal of lower mortgage rates and may stop purchasing mortgage bonds.

It is very difficult to predict mortgage rates into the future. But we do know that current rates are low by historical standards. This may offer homeowners and homebuyers an opportunity to lock in low rates.
*Non-conforming loans (over $417,000), currently are at much higher rates than conforming loans.

Similar Posts:

None Found

Short URL: http://www.ranchocordovapost.com/?p=2365

Posted by Chase Armer on Jan 23 2009. Filed under Lifestyle. You can follow any responses to this entry through the RSS 2.0. Both comments and pings are currently closed.