Mortgage rates are at historical lows due to the Federal Reserve's unprecedented purchases of Treasury and mortgage-backed securities. The Fed had said previously that it would continue to buy these securities indefinitely. Now, there are signs that “indefinitely” could be closer than the Fed had previously suggested.

At the last meeting of the board of governors, there was heavy debate about how long the Fed should continue buying Treasuries and mortgage-backed securities. A few governors believe economic growth is on track. Other governors expressed concerns that the Fed's mounting debt purchases will be difficult to unwind and could roil credit markets.

The bottom line is that the Treasury and mortgage-backed securities purchases could end before the end of the year, which would be sooner than most Fed watchers had anticipated. Should the Fed cease its debt purchases, interest rates and mortgage-lending rates will surely rise.

A couple weeks ago, we said that mortgage lending would likely become a more “normalized” market. To that end, a more normalized mortgage-lending market entails a market without a Federal Reserve subsidy.

The point we want to emphasize – one we've emphasized many times – is that the risk of holding out for lower mortgage rates (or expecting current rates to be maintained) is rising, and this rising risk is something all refinance candidates and home buyers need to keep in mind.

 Courtesy of Jessica Regan.

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