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Bond Prices And Interest Rates Connection Explained In A New Loan Love Article

September 3, 2013

A new article from LoanLove.com takes a look at the Fed's bonds buying activity and explains the effect it has on mortgage interest rates.

San Diego, CA (PRWEB) September 03, 2013

LoanLove.com is a borrower advice website that provides detailed insights into the mortgage industry in a fun and entertaining way. The team at LoanLove.com is devoted to help empower both first time and experienced homeowners with valuable resources, first-class knowledge and connections to top-rated industry professionals and has the mission of helping consumers and borrowers to obtain the latest information on mortgage lending trends, the real estate market and the U.S. financial landscape in order to help them obtain a home loan that they will love. A recent article posted on LoanLove.com explains the correlation between bond prices and interest rates so that borrowers will have a better idea of why interest rates have gotten so high recently.

The article says: “They may not be as interesting as international espionage and the cool crime-fighting tools 007 gets to use, but T-bonds (short for treasury) have certainly been in the news lately, thanks to the Federal Reserve and its popular (among homebuyers, anyway) bond-buying program. The Federal Reserve began buying bonds to help stimulate consumer spending in an effort to prop up the sagging economy. The measure was meant as a temporary stopgap until the economy showed signs of improving over the long haul. Now that housing sales have been rising and unemployment has been falling, the Fed has begun to consider phasing out the bond-buying program, a move that has homebuyers, lenders and investors holding their collective breath.”

The Loan Love article continues: “See, as long as the Federal Reserve Bond Buying Program continues, it does several things: keeps interest rates low – which means cheaper credit and mortgages; inspires consumer confidence which spurs buying; and both increases the demand for bonds and inspires confidence in investing in bonds. Bonds are inversely tied to short-term and long-term interest rates; so, when bond rates rise and stay relatively strong (as they have been under the Fed program), interest rates fall. That, in turn, means that mortgage rates fall, which means consumers are more likely to buy more homes.”

The program was originally started when the economy was very weak, in an effort to inspire confidence and boost consumer buying by making it easier to get loans and credit. However, this was always a temporary fix and now that the economy is showing signs of recovery, there has been much talk of the Fed putting an end to their bonds buying activities. As a result, interest rates have begun to respond in anticipation of the proposed tapering off of the program.

This is why interest rates are rising so high right now. The article also explains what this will likely mean in the future: “Like any security (stocks or bonds), when there’s a major shift in the environment in which the security is traded – in this case, the cessation of the fed buyback program – you can expect considerable fluctuations in the market as people take bets to try to earn some fast cash. Over time, though, consumers can expect mortgage rates to level off once again – though at considerably higher rates than, say, a year ago.”

“The key thing to remember: The record-low mortgage rates of days past were artificial, propped in place by the Fed. Once the Fed buyback program ends, rates will return to normal levels. So rather than thinking of it as some prediction of doom and gloom, consider it a rate adjustment that was bound to occur sooner or later. The moral of this story for potential homebuyers: Lock in your rates now as a hedge against rising rates in the future.”

For more information on the Federal Reserve’s Bond Purchasing Program, visit LoanLove.com for the full article.

For the original version on PRWeb visit: http://www.prweb.com/releases/loan-love/bonds-prices-and-rates/prweb11087717.htm


Source: prweb