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Here’s what you need to know about mortgage interest rates.  Have you been watching the interest on your bank’s website waiting for the best time to lock your rate?  Or maybe the local news has been giving a brief report on the market and the Fed’s announcment that they are cutting the rate…  Huh?  There are too many moving parts in the “mortgage machine” to predict the whole future, but here is a little piece of the puzzle that you should understand:

Chart: Fed’s Purchase of Mortgage Backed Securities (Weekly Averages Per Month)

As you can see from the chart above, the Federal Reserve’s purchases of mortgage backed securities (MBS) peaked at an average of $25 Billion per week back in May – and they are getting closer every day to being done spending the $1.25 Trillion. It’s been publicly announced that the remaining purchases would be rationed out until the end of March 2010 – but that they wouldn’t be making any additional purchases beyond that. The average purchases per week have been moving lower, down to $14 Billion per week so far in November.

The important point mentioned here is the home loan rates are based on MBS – so when the Fed agreed to purchase large, it created a delicate balance that keeps MBS prices high and home loan rates low. So as the Fed’s wrap up this program and slowly puts an end to purchasing these securities, home loan rates are going to rise. So while rates are great today, they won’t be for long.