The Federal Reserve's announcement Wednesday that it would continue buying mortgage-backed securities and long-term Treasury bonds is aimed at lowering the national unemployment rate to boost the economy. But homebuyers and those looking to refinance into a lower mortgage rate will feel the effects as well.
"Once the Fed’s new stimulus, dubbed QE4 (which stands for the fourth round of quantitative easing), gets started after the first of the year, it should help marginally reduce long-term interest rates and, more specifically, fixed mortgage rates," says Greg McBride, CFA, Bankrate's senior financial analyst. But the Fed's action is "small potatoes compared to the 'fiscal cliff,'" he adds. "If the economy slows due to going over the cliff early next year, then the slower economy and not QE4 will be the main catalyst for lower rates."
A sustained mortgage rate below 3.5 percent will facilitate another round of serial refinancing for borrowers who had previously refinanced just above the 4 percent level, McBride says.
The mortgage rate forecast for next year will depend on what Congress does this year to prevent a possible economic slowdown. "If the fiscal cliff is averted and the economy continues to grow, we’re likely to see mortgage rates trend higher in 2013" says McBride. "But mortgage rates will in no way be an impediment to a well-qualified borrower. Even if today's 3.5 percent rates became 4 percent sometime next year, those rates are still low enough to enhance affordability."
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