Rising Interest Rates
On Thursday, February 18, 2010, the Feds raised the discount rate to 0.75%. It was previously at 0.5%. What is the discount rate? It is the rate that the Federal Reserve charges to banks for borrowing short-term funds.
So how does that affect you? Mortgage rates are on the rise. When there is an increase in the interest rates being charged to banks, you can be sure that the banks will follow suit and increase the interest rate being charged to consumers. Another thing that will be driving interest rates up is the fact that as of March 31, 2010, there will no longer be help from the government to keep mortgage rates under control. When lending money, banks typically create giant pools of home loans and turn them into securities that can be traded on the open market. Normally, investors buy these mortgage-backed securities, providing a stream of money for lenders so they can make loans at relatively cheap rates. When the financial crisis struck, many investors pulled out leaving the housing market in a panic. That is when the Feds stepped in. The current interest rate is low because they became the only major buyer of the mortgage-backed securities; this gave them control of the rates being charged to consumers. The Treasury stopped buying mortgage securities this past December, and as of March 31st, they will no longer be purchasing securities.
What does this mean for rates? Some officials are saying rates will rise modestly. Still, others warn that mortgage rates could shoot up, perhaps to 6 percent or higher because private investors buying securities would demand a greater rate of return than the Fed. We will just have to wait and see.
Want to take advantage of these low rates? Contact The Kuchta’s – Kelly & Colleen at 262-894-6512, or just send us a quick email to ckuchta@shorewest.com . Don’t miss out on your opportunity to reach the American Dream of owning your own home!
Posted by:
Colleen Kuchta
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