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So what happens now with mortgage interest rates?

Almost as quickly as interest rates popped up in mid-May, they began to come back down on Sept. 19, one day after Fed Chairman Ben Bernanke did a 180-degree turn and announced that the long-feared process of “tapering off” the low interest rate stimulus would not begin as planned.

The Fed has been buying U.S. debt in the form of treasury bonds and mortgage-backed securities to the tune of $85 billion per month to create powerful demand for these financial instruments which, in turn, lowers the rate of return for investing in them and that lowers mortgage rates.

It’s all about supply and demand; the greater the demand (money flowing into the market), the lower the cost of the money that filters down to the average consumer buying a home and using a mortgage to finance it.

Even the potential for a gradual reversal of that process, which has been going on for some 18 months or more, shook the markets up in May when it was announced that a plan to start slowing down the gravy train made interest rates jump up 100 basis points (or one full percentage point) almost overnight.

The effect was immediate; applications for mortgages slowed down dramatically, refinancing slowed to a crawl and most people who were hot to get into a new home while the rates were such a bargain, simply headed for the beach or lake and decided there was no particular rush any longer.

The 4.5 percent to 4.75 percent interest rate environment had been pretty flat since the jump in May, which economists attributed to the fact that the markets had already factored in the easing up of this extraordinary stimulus.

It was a forgone conclusion that in September gradual changes to lower the amount of purchasing of treasuries and mortgage-backed securities would begin and would slowly continue through 2014 and 2015 until we reached a more “normal” (whatever that is, any more) market-driven interest rate environment.

Sounds simple, but it really isn’t.Many complexities are interwoven into the Fed chairman’s decision: Statistics show that a little more than 23 percent of U.S. households are still upside-down in equity on their homes, or if they have any equity, it’s minimal.

Unemployment is still much higher than what is considered healthy for economic expansion. The real estate industry, which has far-reaching impact into almost every other wholesale and retail business line, is improving, dramatically. But it is also very fragile as it is interest-rate sensitive.

Then we have the American consumers who still don’t seem to feel terribly positive about their current and future economic prospects.

In weeks and months to come, we will continue to hear all kinds of dire warnings from economists about the danger of the U.S. government’s continued stimulation of the financial markets and that, down the road, the price to pay for all of this stimulus will be high inflation and the eventual bust that always follows a boom period, particularly one that was artificially created by outside intervention rather than free markets balancing their own supply and demand.

For that matter, the Fed chairman could always change his mind, yet again. But in the meantime the good news is that for the balance of 2013 and probably well into 2014, unless some extraordinary economic event intervenes, interest rates will remain much lower than they otherwise would be, and it will continue to be a great time to buy or refinance a home.


Barbara Cunningham, is a vice president and senior loan officer at St. Mary’s Bank.


This informatio

n has been provided by the Mortgage Bankers and Brokers Association of New Hampshire (MBBA-NH) in conjunction with the New Hampshire Union Leader. Any questions about the content should be directed to the MBBA-NH at 6 Garvins Falls Road, Suite 106, Concord, NH 03301, e-mail at, website Article supplied by: Barbara Cunningham, VP, Senior Residential Loan Officer, St. Mary’s Bank NMLS #161310.

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