subject: Mortgage Rates- Where Are They Going From Here? [print this page] With the economy as it is, the mortgage rates are lower than they have been in years. This is great for the borrower, but a scare for the market and the economy. There are two specific reasons why the mortgage rates are so low in today's market.
The first reason is that the Federal Reserve Board- FRB is responsible for having purchased in 2009 Mortgage Backed Securities worth close to $2 trillion dollars. And, the second reason is that the Federal Reserve Board is the large mortgage buyer in the secondary market in the industry today. However, this will not last as the Federal Reserve Board reiterated many times that by the end of March 2010 they will discontinue their mortgage support program.
The Federal Reserve Board intervention has held mortgage rates one to two percent below where they would normally range.
The official Federal Reserve Board statement as of January 27 read in part:
"To provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets, the Federal Reserve is in the process of purchasing $1.25 trillion of agency mortgage-backed securities... the Committee is gradually slowing the pace of these purchases, and it anticipates that these transactions will be executed by the end of the first quarter.
This is leaving many asking the question what will happen next to the price of Mortgage Backed Securities, as the biggest buyer in the market disappears.
What will happen is the reduction in demand from the Federal Reserve Board will reduce the price of mortgage backed securities. Meaning, when the mortgage bonds go down in price, the mortgage rates will increase. Interest rates are the inverse of bond price which the dramatic effect may have a range from 1% to 2% or higher in the 30 year fixed rate mortgages when the FRB exits the picture. Whether the FRB continues on or leaves the picture in March, rates are expected to increase due to other powerful factors.
In the year 2010 the fixed rate securities market will be forced to absorb 11 times the amount of 2009 of the United States dollar denominated debt. That is a huge increase on an already hard hit industry. Is this likely to affect interest rates across the board? The future is foreseeable and it is likely that we will continue to see low rates for many years to come. However, for those seeking to refinance the time to act is now.
This is definitely a wise time to refinance, and those who can afford it, to purchase. Lay-off and a poor economy has forced many out of this picture, and definitely do not enter the picture if you foresee problems meeting your mortgage, as the ill effects are detrimental to your credit ratings. There is a definite certainty that interest rates are not likely to rise any time in the near future and for those with existing mortgages this is definitely a tune to look at refinancing to a lower fixed mortgage rate. The saving could be dramatic.
