Bank of America (NYSE:BAC) dropped its 30 year fixed rate loan to 4.00% even today in response to the Federal Reserve’s announcement that it would work to lower long term interest rates by buying $400 Billion in long term treasuries. The long term treasuries are instruments that influence prices and yields of Mortgage Backed Securities which in turn affect mortgage interest rates.
15 year fixed-rate loans also moved down to 3.25% today with a 3.597% APR. BoA dropped its 20 year fixed-rate mortgage to 3.625% with a 3.911% APR.
Adjustable-rate mortgages did not change too much with the five-year ARM at 2 .75% to start, the seven-year ARM at 3.125% and the ten-year ARM at 3.50%.
The last significant Federal Reserve action was the QE2 program in which the Fed printed money and purchased $600 billion worth of short, medium and long term treasuries also with the intent of forcing down interest rates. Both plans assume that lower interest rates will stimulate the economy by allowing businesses access to cheaper working capital.
QE2 did in fact, affect mortgage rates. On news of the QE2 announcement mortgage rates dropped to their lowest level in 50 years. However, the actual treasury purchases did not have a clear impact on mortgage rates. If history repeats itself then the Fed’s Operation Twist may have already had all the impact that it is going to have on mortgage rates simply by being announced.