The FED is starting to shift the way they have been performing the past 2 years, due to the pandemic. As we know, the FED started buying government debt i.e. mortgage backed securities and bonds, in an effort to keep interest rates low, and stimulate the economy.
A lot has happened in the mortgage industry in the past 18 or so months. Forbearance directly affected how the FED reacted last year, and with historically low interest rates, we saw a boom in housing sales and refi’s in the past year and a half.
Get ready, what goes down, must eventually go up. We are very likely to see higher interest rates at the end of the year. In fact the rates are already inching up. But, we don’t think that they will breach the 4 per cent level next year. So, traditionally, rates will remain low compared to 3 years ago.
The reason is that the FED is going to back off buying government debt month to month. This will lead to quantitative easing due to the pandemic. “The taper,” which happened a dozen years ago, is happening again, tapering off how much debt the FED buys and causing rates to slowly increase. In the mortgage industry, the market prices that in, and interest rates are already showing the effects.
What does all this technical talk mean for you?
The interest rate is the most important factor of a mortgage. Your ability to re-pay your loan over 360 monthly payments is key. The ability to repay rule applies, and your broker will help you find and qualify for your loan based first on this rule.
Housing is more available too. As rates rise, we’ve seen a slowdown in buying, which means the market isn’t as crazy as it was. The current rates have been priced-in for the next few months. Loans are projected with the new rates, and will further respond if there is a sudden change.
For now, it’s wise to lock in your rate, and start shopping for your loan, whether it be refi or new purchase. And look for rates to likely stay sub 4% though the summer of 2022.
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