The Fed Does the “Twist”

Mortgage rates could fall even lower!

No, we’re not talking about the Chubby Checker hit from 1960. We’re talking about the Federal Reserve’s latest attempt to keep long-term interest rates low in order to boost the sagging economy. Operation Twist, as some have nicknamed it, is a plan by the Fed to sell short-term treasuries (3-year and shorter) and purchase long-term treasuries (6-year and longer) in an effort to keep the long-term interest rates low. The Fed will also use the principal payments from its portfolio of mortgage-backed securities to purchase longer-term treasuries.

The Fed has committed to purchase $400 Billion in longer-term treasuries over the next year. By buying these treasuries the price will increase thereby reducing the rates on the securities. Fixed interest loans and mortgage should see a slight improvement in rates due to this program.

One of the targets of this program is the housing market.
The Fed hopes that by keeping rates low it will spur some home buying. However, I think the impact on the housing market will be limited at best. With mortgage rates already at historic lows, prospective homebuyers are not putting off a potential home purchase because rates are too high. They are putting off a purchase due to lack of confidence in the economy, fear of future job loss, current home they are unable to sell, and property values that continue to fall – none of which have anything to do with mortgage rates.

Current homeowners looking to refinance may benefit, though. Even though interest rates have already been historically low, many people may still be able to save money as rates decrease. Hopefully, this savings will help consumers pump more money back into the economy and help prevent a second (or double-dip) recession.

The impact on the overall economy won’t be known for months. But, if you are a homeowner looking to save some money, give me a call today to see if refinancing is right for you. I can be contacted at 708-473-7688 or BarkerLoans@gmail.com.