Lets all get on the same page first. Why does U.S. mortgage interest rates benefit from the Fed buying up Treasuries?
Lets think first before I move on, the common law of supply and demand. So the Federal Reserve plans to buy up to $300 billion of Treasuries and increase purchases of mortgage-backed bonds. This will mean there is less of a supply…supply goes down, and demand goes up. So, the Fed is trying to lower rates by reducing the supply of outstanding mortgage bonds, boosting their price (when demand goes up, the merchant can increase their selling price) and lowering yields. That would allow banks to reduce the rates on new mortgages and still sell mortgage securities at a profit. Well, if the bank is getting a better “bang for their buck”, they don’t have to charge such a high rate when loaning us money to make their profit.
Why is everyone running around “willy nilly” refinancing if the rates are going to get better? The American government, American leaders, and American economists bleed the same color blood that we do, and if they all knew the answer beyond a shadow of a doubt, we wouldn’t be where we are at right now.
Remember, the ultimate goal of all this is that rates get low enough for home buyers to come out of the wood work and buy homes. Bloomberg.com’s Brian Louis reported Mike Larson, a real estate analyst of saying,
“Lower mortgage rates by themselves also may not be enough to spark demand for home purchases. For consumers who’ve lost their jobs or are worried about losing their jobs, low mortgage rates won’t be enough to prompt them to commit to buying a house, Larson said.”
My advice to the families considering refinancing is, if it makes since for you to refinance with today’s interest rates, and you can see a benefit for you and your family’s financial future, “pull the trigger”.
BEST OF LUCK IN YOUR REFINANCING!
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