Home buyers and homeowners may want to be prepared for the possibility of higher mortgage rates next year. That’s one take-away from a statement the Federal Reserve issued Wednesday, November 4..
Rates could rise after Fed ends mortgage programs
The Fed said in its Nov. 4 statement that it expects to end two of its programs, one to buy up $1.25 trillion of mortgage-backed securities and the other to lend as much as $175 billion to mortgage corporations Fannie Mae and Freddie Mac, by April 1, 2010.
The Fed said that it will “gradually slow the pace of its purchases” of mortgage-backed securities and that “these transactions will be (completed) by the end of the first quarter of 2010.”
Analysts have suggested that interest rates could rise as these programs end. The programs to buy mortgage securities and lend money to the two mortgage corporations have helped keep mortgage rates low.
Economy has improved, Fed says
The Fed’s intention to end the mortgage programs is based on its view that the economy has improved. Home sales have increased in recent months, consumer spending appears to have expanded, and inflation is expected to “remain subdued for some time,” the Fed said.
Banks and other lenders take the Fed’s rates into account when they set mortgage rates, auto loan rates and credit-card rates, although those rates aren't set directly by the Fed.
Fed to maintain benchmark rate
The Fed also said it will keep its benchmark federal funds rate in a range of zero to 0.25 percent, a very low level.
The Fed “continues to anticipate that economic conditions…are likely to warrant exceptionally low levels of the federal funds rate for an extended period,” the statement said.
That could be good news for borrowers who act now to take advantage of low mortgage rates.