Mortgage Rates Rising In Anticipation Of Federal Reserve’s Possible Decision To Taper

LoanLove.com comments on the recent rate increases and explains how the Fed’s Bonds Buying Program affects home loan borrowers.

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San Diego, CA (PRWEB) December 07, 2013

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. Now, with mortgage rates rising in anticipation of a possible decision by the Federal Reserve to slow their bonds purchases within the next few months, many borrowers are likely wondering exactly why this decision will have such a big impact on the availability of low mortgage interest rates.

A report posted by Bankrate on November 27th explains: “Rates started climbing last Wednesday after the minutes from the last Fed meeting were released. Investors interpreted the minutes as a hint that the Fed might slow the pace of the stimulus program in the "next few months." The central bank is spending $85 billion per month buying U.S. Treasuries and mortgage bonds. When the Fed talked about pulling back on the quantitative easing program earlier in May, rates shot up more than a percentage point.”

But why is even the threat of an end to this program such a big deal for loan borrowers? A previously published article from Loan Love explains: “See, as long as the Federal Reserve Bond Buying Program continues, it does several things: keeps interest rates low – which means cheaper credit and mortgages; inspires consumer confidence which spurs buying; and both increases the demand for bonds and inspires confidence in investing in bonds. Bonds are inversely tied to short-term and long-term interest rates; so, when bond rates rise and stay relatively strong (as they have been under the Fed program), interest rates fall. That, in turn, means that mortgage rates fall, which means consumers are more likely to buy more homes.”

The article continues, saying: “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.”

At this point any economic data that shows strong signs of economic growth could signal to the Fed that it is time to start tapering. This Friday’s jobs report is an example of what investors are looking at to determine how the Fed will decide on their upcoming meeting this December 17-18. Loan Love states, however, that the Federal Reserve's tapering may not be as terrible as it sounds. The article says:

“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 on the Federal Reserve’s Bond Buying Program, read the full article on LoanLove.com.


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