Federal Reserve Bond Buying Program May Be Drawing To A Close: Loan Love Discusses The Fed’s Plans In A New Article

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A new article from LoanLove.com discusses how the Fed's program, and it's proposed cessation, affect mortgage interest rates.

LoanLove.com is a borrower advice website that provides detailed insights into the mortgage industry in a fun and entertaining way. The team at LoanLove.com is devoted to help empower both first time and experienced homeowners with valuable resources, first-class knowledge and connections to top-rated industry professionals and has the mission of helping consumers and borrowers to obtain the latest information on mortgage lending trends, the real estate market and the U.S. financial landscape in order to help them obtain a home loan that they will love. The website is continuously updated with articles that can help home loan borrowers understand the different aspects of finding the best loan. A recent article posted on the website explains the Federal Reserve bond buying program and talks about how speculation about the program ending has been causing mortgage rates to rise.

The Loan Love article says: “They may not be as interesting as international espionage and the cool crime-fighting tools 007 gets to use, but T-bonds (short for treasury) have certainly been in the news lately, thanks to the Federal Reserve and its popular (among homebuyers, anyway) bond-buying program. The Federal Reserve began buying bonds to help stimulate consumer spending in an effort to prop up the sagging economy. The measure was meant as a temporary stopgap until the economy showed signs of improving over the long haul. Now that housing sales have been rising and unemployment has been falling, the Fed has begun to consider phasing out the bond-buying program , a move that has homebuyers, lenders and investors holding their collective breath.”

The article goes on to explain that the Federal Reserve Bond Buying program accomplishes several things: it keeps interest rates low resulting in cheaper credit and mortgages; it encourages consumer confidence which leads to more spending; and it increases the demand for bonds boosts confidence in investing in bonds. The article also explains that bonds are inversely related to short and long term interest rates which is why when bond rates rise and are strong as they have been with the Fed’s program, interest rates tend to fall. Lower mortgage rates mean that more people are likely to purchase new homes.

Loan Love says: “When the economy was weak, the Fed bought bonds to inspire confidence and make it easier to get loans and credit. But that move was always meant to be temporary. Now that the economy has shown strong signs of growth and improvement, the Fed has been talking about halting its bond buying activity, and as a result, interest rates have begun to respond in anticipation.”

This explains why rates are rising so fast right now. However, as with any security, major fluctuations can be expected when there is a considerable shift in the environment which the security is traded. In this case the cessation of the Fed buyback program has caused many to take bets in an attempt to earn some fast cash, and this has caused some volatility. In the long run, however, consumers can expect mortgage rates to stabilize, but at considerably higher rates than those that were available a few months or even a year ago.

The Loan Love article ends by saying: “The key thing to remember: The record-low mortgage rates of days past were artificial, propped in place by the Fed. Once the Fed buyback program ends, rates will return to normal levels. So rather than thinking of it as some prediction of doom and gloom, consider it a rate adjustment that was bound to occur sooner or later. The moral of this story for potential homebuyers: Lock in your rates now as a hedge against rising rates in the future.”

For more information, please visit LoanLove.com for the full article.

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Kevin Blue
Loan Love
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