federal reserve

Fed didn't taper; effect on your finances

Mortgage rates have fallen
Mortgage interest rates

The Fed has done a huge a favor to mortgage borrowers by not scaling back its bond-purchasing stimulus program now.

Mortgage rates eased last week immediately after the Federal Reserve announced that it would continue to purchase $85 billion a month in Treasury and mortgage bonds. Investors and economists had expected the Fed to pull back on purchases starting this month.

That could have caused mortgage rates to climb by about a quarter of a percentage point, says Paul Edelstein, director of financial economics at IHS Global Insight.

But instead of being slapped with higher rates, borrowers and potential refinancers were given a reprieve as rates trended down.

"Take this little break you have been given and lock," says Michael Becker, a mortgage banker for WCS Funding in Baltimore. "For refinancers, this little drop in rates can make a difference. Take a look at the numbers again and see if it makes sense to refinance now."

The Fed hasn't ruled out tapering the stimulus program this year. That means rates could spike again when the Fed meets in October.

Rates on home equity lines of credit, or HELOCs, won't be affected by the Fed's move as these rates are tied to the prime rate, which is tied to the federal funds rate, Becker says. The Fed has kept the key interest rate near zero percent since 2008.

- By Polyana da Costa


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