The Motley Fool – John Maxfield
Even though mortgage rates have increased since the middle of last year, they’re still ridiculously cheap from a historical perspective. The going rate for a 30-year fixed rate mortgage is 4.32%, according to Freddie Mac. While that’s almost a full percentage point higher than 2012’s bottom, it’s roughly half the 40-year average of 8.55%. My point here is mortgage rates are still extremely cheap. On top of this, they’re bound to go up — or, at least, let’s hope that’s the case (if they don’t, it means the economy is still sputtering along).
In the middle of last week, the Federal Reserve reconfirmed its commitment to reducing its monthly purchases of Treasuries and agency mortgage-backed securities. While this may seem esoteric and innocuous, it’s anything but that from an interest rate standpoint. The central bank’s purchases of long-term bonds are the precise reason mortgage rates are so low. Consequently, any reduction in these purchases, which is precisely what the Fed is engineering, will almost necessarily lead to higher borrowing costs.
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