Fed Continues to Purchase Bonds

What is happening to mortgage interest rates?

The Fed recently announced they would continue their current pace of purchasing bonds until the economy was stronger. This came as a bit of a surprise. This bond purchasing program is part of an overall stimulus package and is the primary reason that mortgage interest rates are at historic lows.

The assumption that there would be a reduction in bond purchases had caused 30 year mortgage rates to spike upward over the last few months.

For the time being, this is good news for homebuyers.  But do not expect the low rates to last. Forecast from The Mortgage Bankers Association, Fannie Mae, Freddie Mac and the National Association of Realtors have each projected that the 30 year fixed rate mortgage will have interest rates in excess of 5% by this time next year.

The average of their four projections is 5.3%. The table below shows the impact this will have on the monthly principal and interest payment on a $250,000 mortgage:

Given this information,the window of opportunity to buy a home a these low rates could be closing.  Ben Bernanke, Chairman of the Federal Reserve, wen on to suggest that the Fed could still scale back the stimulus this year. He stated: “If the data confirms our basic outlook, then we could move later this year.”

To calculate the impact of impact of changes in interest rates on your possible real estate purchase, you can use our online calculators.