Fed Changes & Mortgage Rates

December 13th, 2010

00014508What the Fed’s action means for home mortgage rates

On November 11, the Federal Reserve announced its plan to buy back $600 billion in government securities.  If you’ve been following the mortgage rates since then, you’ve seen it all:  Mortgage rates fell to record lows, and then jumped to their highest rate since August.

What the heck is going on here? Here’s the skinny on the recent government moves and how it impacts Philadelphia home buyers and sellers:

What the Fed Moves Mean

The new government initiative, known as quantitative easing, is aimed at stimulating the economy and reducing unemployment. At its most basic level, it allows the government to pump money into the economy ($600 billion to be exact).   If you’re looking to buy or refinance a house, this helps you by keeping mortgage rates low.

(For a good visual on how this works, check out this interactive graphic from the Washington Post for a breakdown of Fed strategy.)

Impact on Mortgage rates

While mortgage rates increased this week, the rates are still under 4.5% and will have little impact on home buyer’s ability to buy.  Mortgage rates on a 30-year fixed rate are at 4.39% for the week ending November 18, up from 4.17% the previous week, according to Freddie Mac’s weekly survey.  The new rate is still lower than it was a year ago, and is still phenomenally low.

Refinance or Wait and See?

While it’s tempting to hold out for even lower interest rates, most experts agree that mortgage rates probably won’t go much lower. The new Fed initiatives will keep a cap on mortgage rates in the short term, but the window of opportunity to take advantage of today’s rates will narrow as consumer confidence increases.    For those interested – and able – to refinance their house, the time is now.  As the economy improves, mortgage rates will continue to increase.  The higher the rates go, the less you can potentially save.

If you’re looking to refinance your home, check out Trident Mortgage’s refinancing benefits calculator to see which option is best for you. 

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