The Federal Reserve has been purchasing mortgage-backed securities guaranteed by Fannie Mae and Freddie Mac since early last year. The purchase program has helped maintain low interest rates for borrowers. As planned, the Fed this past week announced it will stop purchasing these securities at the end of this month. With the Fed discontinuing its purchase program, some analysts believe a rise in interest rates could range from a low of 0.25 percent to as much as 1 percent as analysts at Barclays Capital predict by the end of 2010.
Rising interest rates will have an effect on home buyers. For example, a qualified who receive a mortgage rate of 5 percent today for a loan of $590,000, would only qualify for a mortgage of $540,000 for the same monthly payment if the interest rate were to rise to 6 percent.