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Mortgage Rates Likely to Increase in March 2010 as Fed Withdraws Support

Posted by: RateAPY Bank Rates News
November 23rd, 2009

The federal government has been stimulating economic growth by keeping the main interest rate, the Fed Funds Rate, at a target of 0.00% to 0.25%. With the Fed Funds interest rate at almost zero for over a year–with no room to drop further–the Fed has had to use other means to further stimulate the economy. Keeping the Fed Funds Rate at zero is like playing your best hand at cards. The way to beat that best hand of cards is with some kind of trump. Buying mortgage-backed securities (MBS) is like the Fed playing a trump card.

Fed’s Mortgage-Backed Securities Purchase Program

The government has committed to purchasing $1.25 trillion in MBS by March 2010. That commitment makes the government the largest purchaser in the MBS market. Many analysts believe that once the purchase program concludes and the artificial support is taken out of the market, mortgage rates will likely go back up to the 6% range. Although there has been talk of extending the program, nothing definite is known. If you’re planning on locking in a low fixed rate for a home purchase or refinance, it’s best to do so sooner rather than later.