This afternoon the Federal Reserve announced the next phase of their strategy to stimulate the economy. Broadly referred to as Quantitative Easing 2, the plan involves printing a whole lot of money in order to buy long-term US Treasury Bonds in the markets.
The Fed’s big picture goal is to reduce unemployment, and hopes that injecting more money into the economy will encourage businesses to begin taking risks to expand their operations (hire more workers), which would hopefully also boost confidence and inspire consumers to increase their spending.
Analysts, economists, and investors have been debating the merits of the expected plan for weeks. Some feel it will be modestly helpful in supporting the business environment, while others are quite pessimistic. Ultimately this sort of indirect economic stimulus relies on a chain of events, with many types of participants, so it’s impossible to predict what will happen with any level of confidence.
Commentators do seem to agree that the Fed’s move will continue the very favorable refinance opportunity for homeowners. Because mortgage rates are generally based on the long-term US Treasury Bonds, and those are the exact securities the Fed plans to purchase, rates should be directly impacted by the program. Again, there are various opinions as to how much lower mortgage rates may go, but I have not seen any articles expecting them to rise.
The refinancing opportunity appears as though it will be extended again. Homeowners with strong credit and positive home equity may want to consider improving their interest rate and/or shorting the length of their loan. Just keep in mind that there is an up-front cash cost to refinancing, so in order for it to make sense homeowners should plan to be in their property for at least a few more years. We’re happy to share our experience with the process and suggest mortgage professionals – just call or email.