Will the latest Fed meeting be a turning point for mortgage rates?

September 25th, 2013

For the fourth week in a row, 30-year fixed mortgage rates stayed in a tight range between 4.50 percent and 4.58 percent. However, the outcome of the Fed meeting concluded on September 18 raises the possibility that those rates might just fall below that range next week.

While consumers can easily fine tune the interest rates they put into their mortgage calculators, a difference of 8 basis points or so isn't going to have much of an impact on whether someone can afford a home, or whether it makes sense for them to refinance. However, a new drop in rates, after four months of mostly rising rates, could cause a ripple in the refinancing market, and ultimately even in purchase demand.

What the Fed decided… and why it matters

The Federal Reserve announced that it would continue its program of stimulative measures a while longer. That program consists of keeping the Fed funds rate near zero, and making monthly purchases of mortgage-backed and Treasury securities totaling $85 billion to drive down longer-term interest rates.

It is those securities purchases that helped drive mortgage rates down to record lows. Subsequently, indications that the Fed would taper off those purchases as the economy improved helped precipitate the rise in rates that began in May. Now though, with the economy failing to gain momentum and the Fed deciding to continue its asset purchases, the impetus behind rising rates has been removed.

What consumers should make of this

The Fed's decision raises the possibility that mortgage rates could ease a bit in the weeks ahead, but it doesn't guarantee it. This is where consumers need to seek guidance from both loan calculators and their own best judgment.

If the mortgage calculator numbers indicate that you can afford a house at current rates, or could save money by refinancing as things stand now, you might not want to gamble on the possibility that rates will fall, because the downside is that you could miss your opportunity altogether.

On the other hand, if the numbers on your purchase or refinance calculator don't add up at current rates, you have no choice but to wait -- and the Fed's decision should give you a little more hope that your wait won't be in vain.

Posted By :

Richard Barrington has earned the CFA designation and is a 20-year veteran of the financial industry, including having previously served for over a dozen years as a member of the Executive Committee of Manning & Napier Advisors, Inc. Richard has written extensively on investment and personal finance topics.

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