The FED (also know as the Federal Reserve) made an announcement yesterday that it will continue to buy upwards of 80 billion dollars worth of bonds each month. This had a very positive effect on the stock market, but what does it mean for your plans to purchase a home?

The FED was created by Congress to implement a sound monetary policy (low unemployment, stabilization, and growth). It operates independently, but under the oversight of congress, and has the ability to buy government securities (i.e. bonds), set the interest rate that banks are to pay on short-term loans, and set the minimum amount required to be held by banks in reserve as physical funds (i.e. tangible money).

When the FED purchases bonds, the demand for those bonds will increase. This, in turn, raises the present value. Because the interest rate is determined by “face value/present value.” Therefore, when the present value rises, the interest falls.

Accordingly, the FED buying up bonds means that interest rates will probably stay in the same range (but will not rise) until the FED changes its policy.

This is great news if you are currently on the house hunt! This means you still have a while to obtain a home loan at a lower interest rate, but don’t wait too long!

Have questions about purchasing a home? I am available 24-7 at abennette@weclosetheloan.com.

DISCLAIMER: This article is intended for informational purposes only and does not constitute legal advice. You should not rely or act upon any information contained in this article without seeking the advice of qualified legal counsel.

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