Why Mortgage Rates Are Growing

Though still extremely low by many measures, the 30-year fixed rate mortgage averaged 4.12
percent for the week, up from 3.94 percent last week, according to a Freddie Mac survey. The
Federal Reserve released its post-meeting policy statement at 12:30 P.M. eastern time after the
Federal Open Market Committee (FOMC) finished its two-day meeting. Ahead of the Federal
Reserve's announcement, government-sponsored Freddie Mac pronounced fixed mortgage rates
held steady as the financial markets speculated there would be further stimulation. As part of so
called QE2, the Fed reinvested in securities purchased during QE1 and purchased $600 billion in
long-term Treasury securities. Nevertheless, Misra said the markets happen to be behaving as
though they do not consider the Fed.
Torralba said QE2 lowered long term interest rates by less than the initial round of quantitative
easing, which began in late 2008, at the peak of the fiscal crisis. The yield to maturity calculation
comprises the bond's present market price, par value, coupon interest rate and time to maturity.
Certainly one of the easiest strategies to see this concept in activity would be to consider the
worthiness of a zero-coupon bond in a variable interest rate environment. The market believes the
Fed is already tapering off its quantitative easing program.
A zero-coupon bond ensures that the bond doesn't distribute interest payments during the life of the
bond. Many bond computations will entail interest rates, coupon rates, payments and frequencies as
well as other factors which increase the computation's complexity. In general, investors are always
seeking the highest rate of return for every unit of risk they take on. If present interest rates were to
rise to 5 percent, then having a zero-coupon bond that is only yielding 3 percent becomes less
attractive. One more way to see this relationship in action is to add on a coupon (interest) rate. As
stated by the Federal Reserve, the average 48-month new car loan rate is 4.87%.
For example, Matt and Amy have been following the news and notice the MG Corporation is raising
capital by issuing bonds. This all seems good to Matt, so he determines to buy the bond Amy decides
to hold off, because she believes that interest rates will grow in the the next couple of weeks, as well
as for this particular example, she's right. You may get an entire chart of rates for federal student
loans in the Department of Education's website.
As you'd imagine, if interest rates decreased to 2 percent and Matt wished to market his bond, his
could sell at a premium or above par value. This is just another way to illustrate the inverse
relationships between rates of interest and bond costs, and remind you to think about the ups and
downs before jumping to the bond market. In case you have federal student loans or plan on using
the to fund your education, realize that you just can not shop around for rates since they're set
under the national Direct Loan system.
The Credit Union National Association lists the typical 30-year fixed conforming mortgage rate at
3.67% through credit unions, and 3.59% fixed through banks as of July 19. According to , the
average national typical interest rate is 3.87% with43 points. If you're buying a new mortgage loan
or to refinance your present loan, make sure to ask about points and closing costs as well as the
interest rate. The conflict between stated Fed policy and marketplace behavior is creating volatility
in short-term movements of rates.