Fed Indirectly Helps FHA Loan Rate

There is no correlation between the Fed Funds Rate and mortgage rates.  There is a strong correlation between the Federal Open Market Committee’s statement and mortgage rates.

The FOMC meeting yesterday was the big news item of the week.   The tone was balanced and mortgage bonds have responded well today.  Rates are lower by .125%.

Here’s is what we learned yesterday:

Economic Outlook

The Fed is being very cautious in its statements, but it’s being mildly optimistic.   We have generally good economic signals and there is little concern over inflation.   The job market is showing stabilization and possibly improvement.  Housing has already turned the corner and is showing significant improvement.

There is concern and there could be set-backs along the way.  We don’t have a perfect job market, confidence is low, and things are not fixed.  They’re better and the signs say the worst is behind us.

FHA Interest Rate Predictions

Mortgage rates are increasingly getting closer to the beginning of the end.  The Fed reiterated its plan to complete the $1.25 trillion commitment to the mortgage bond purchase plan.  This will end by the end of March 2010.

Rates will go up.  Simple.  The “insider numbers” say that 1% is the target.  WSJ reported that the Fed insiders think we’re looking at a 1% mortgage rate increase when support is gone.

On a $200,000 loan, the difference between today’s 5%-ish rates and April 2010′s 6%-ish rates would be about $125/month.