Interest Rates For Home Purchases

The Federal Reserve announced yesterday that it will maintain its target for the federal funds rate in the 0 to 0.25 percent range, and expects economic conditions to warrant exceptionally low levels of the federal funds rate for an extended period of time. The federal funds rate is the rate that banks lend balances (federal funds) to each other, usually overnight. While this would seem like good news to home buyers, the Fed also announced that it would end its program of purchasing mortgage-backed securities guaranteed by Fannie Mae and Freddie Mac to help keep home loan rates low. That program will conclude at the end of this month when the Fed's mortgage bond holdings reach the $1.25-trillion limit it set last year.

Since the U.S. government will no longer be purchasing these securities, it can be expected that private institutions will need to take up the slack. They, however, will likely demand that such securities pay a higher interest rate, which could in turn drive up new mortgage rates. For the week endingMarch 11, 30-yr. fixed mortgage rates were 4.95 with 0.7% fees/points and 15-yr. fixed rates were 4.32% with 0.7% fees/points (Source: Freddie Mac).

The bottom line for home buyers is that these are extremely favorable interest rates for mortgages, and they won't be around forever; in fact, most prognosticators expect them to go higher by the end of the year.

Peter Nielsen, Peter@MarinRealtyExperts.com