Thinking of moving? Why April of 2010 is going to be the end of a great opportunity

In November of 2008 the Federal Reserve announced a massive program to purchase the instruments that control mortgage interest rates, Mortgage Backed Securities. (MBS) MBS are bonds issued by Fannie Mae and Freddie Mac that underlie conforming mortgages in the United States. As a result of the “credit crisis” that started in late 2007 any asset that was perceived as having risk was being avoided by institutional investors.
Historically, bad economic times are good for bonds and as a result, interest rates drop. However, due to the perceived risk of MBS, no institutional investors were buying these securities and rates were stubbornly hovering in the 6.5% range.

Enter the Fed. In an effort to aid the housing recovery, they announced that they would buy 1.25 TRILLION dollars worth of MBS. In doing this they forced the price of these bonds up, thereby decreasing their yield (read interest rates drop). This program has been very successful in keeping mortgage rates near historic lows for all of 2009. So, why does this affect you if you are planning a home purchase in 2010? Originally, the Fed planned to end the MBS purchase program at the end of 2009. Realizing that an abrupt end to the program would cause interest rates to spike and have a drastic effect on the markets, they have modified the program to taper off incrementally though the first quarter of 2010. The bottom line, if you are considering financing a mortgage in the next year or two, you could save yourself tens of thousands of dollars by completing your financing by the end of March. We have every reason to believe that by April 2010 rates will be back in the 6.5% range. On a $200,000 loan the difference between a 5% rate and a 6.5% rate is 191.00 monthly basis and $68,000 over the life of a 30 year loan. This truly is the end of a historic opportunity. Don’t miss out!!!