One of the phrases that has been tossed around quite a bit recently is “quantitative easing“. This is a monetary policy course that attempts to increase liquidity in the market. The idea is to promote lending amongst banks by indirectly sending interest rates lower. With the Fed rate effectively at 0%, direct interest rate intervention is not practical. So the Federal Reserve has turned to quantitative easing, buying mortgage-backed securities and agency debt. And, yesterday, the Fed announced its plans to begin purchasing mortgage-backed securities.
If you have seven and a half minutes, this is a better description of quantitative easing than I could ever provide.
Mortgage rates drop
Yesterday’s announcement from the Federal Reserve has resulted in lower mortgage interest rates today. Because mortgage rates are long term debt, they are connected to long-term Treasury bonds, specifically the ten-year bonds. As Treasury yields change, so do mortgage rates. Right now, mortgage rates have dropped to historic lows.
As a result, if you have good credit and if you have a reasonable amount of equity in your home, now might be a good time to refinance. Indeed, you could save tens of thousands of dollars over the life of your home mortgage loan if you refinance to these rates. Even 30-year fixed rates are below 5% right now. You can get even better rates with a 15-year fixed mortgage.