Mortgage Rate News

Mortgage rates are at new historic lows right now. This is in large part to the Federal Reserve decision on Wednesday to begin buying long-term U.S. Treasuries. Mortgage rates are tied in large part to long-term Treasury bond yields. The new announcement from the Fed amounts to what is known as quantitative easing.

In quantitative easing, the Federal Reserve tries to get banks lending to each other through indirect pressure on interest rates. The Fed can’t use direct interest rate intervention at this point because there really isn’t any place for the Fed to go. Right now interest rates are actually set in a band that ranges from 0% to 0.25%. This means that, effectively, interest rates are already at 0%. The Fed only has quantitative easing, and one way to manifest it is through the purchase of U.S. Treasuries.

In addition to the bond purchases, though, the Fed also announced increases in others plans. The Fed will buy more mortgage-backed securities and also purchase more agency debt in order to help clear off the balance sheets of banks and help them start lending to each other again. The hope is that once money begins more freely between banks, it will begin lending to consumers as well.

Mortgage rates move lower — time to refinance?

Of course, one of the big bonuses for consumers is that mortgage rates are lower. As quantitative easing moves forward, it is likely that — along with support President Obama’s efforts to prevent foreclosure — we could see even lower mortgage interest rates. I’m not sure how much lower rates can go (30 year fixed rates are below 5%), but it appears that there is a little room for them to drop.

Even if mortgage interest rates don’t get any lower, it is still a good time to refinance or buy a home. These are low rate, the like that may not be seen again for years.

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