Do Not Wait to Refinance

by Brian Johnson on December 10, 2009

mortgage-refinanceIn order “to provide support to mortgage and housing markets and to foster improved conditions in financial markets more generally,” (according to their own FAQ on the subject) the Federal Reserve Bank has been buying up $1.25 trillion in fixed rate Mortgage-Backed Securities otherwise guaranteed by Fannie Mae, Freddie Mac, and Ginnie Mae.  The result has been a drop in the mortgage rate for 30 year mortgages.  The duration of this program is limited, however, and is set to expire by the end of the first quarter, 2010.

At the end of the Fed’s purchase program next Spring, the market will be ripe for a mortgage rate increase and a reduction in purchasing power for consumers looking for low monthly mortgage payments.  Experts are estimating that when the Fed steps out of its current purchasing position, 30 year mortgage rates are likely to rise to 6% despite government incentives for first time home buyers as well as current homeowners.

What does this mean for you?  In preparation for the likely rate increase, those hoping to buy or refinance should lock in interest rates now rather than later.  The termination of the Fed’s current program is likely to mean an increase of an entire percentage point on mortgages over the current rate for those who wait too long.

For the market at large, the forecast is somewhat grim.  Because the housing market has not yet recovered, the loss of the Fed’s purchase program is more bad news to add to an already bad situation and may contravene the incentives provided by government sponsored stimulus plans meant to help in the housing market’s recovery.

Discussion

Jim
I had no clue that mortgage rates were artificially lower because of a Fed program. Thanks for the great tip!
December 11 at 05:39 am

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