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- The Fed's purchase of $600 billion in bonds will keep interest rates low.
Trend in Rising Rates Unlikely
Last week (mod-November 2010) in anticipation of things to come, refinance applications rose and so did interest rates. While one of these trends is likely to continue into the New Year, one is not. Certainly we can expect refinance applications to increase, but not interest rates. With about $600 billion in bonds to be bought by the Fed over the next 8 months, interest rates will be kept down.
Why Does Buying Bonds Lower Interest Rates?
Well, these Treasury bonds are bought from lenders or banks by the government in the same way that you or I would buy a home, but on a much larger scale. This increases the overall activity in the mortgage market. The result, as we see it, is low rates.
Does This Mean Rates will Stay Low All Year?
It is important to understand that interest rates are affected by more than the buying of bonds. Unemployment, home values, and international events can all help to dictate which direction the mortgage boat will sail.
The Real Question
Rather than trying to make your mortgage related choices based on a questionable future, ask yourself what refinancing could do for you. If it can help you accomplish your goals in home ownership sooner, it make sense to consider shopping around and taking the next step in finding the best deal in today’s mortgage market.