Are Mortgage Rates Influenced by the Presidential Election?

Thinking of buying a home?

If you’re thinking of buying a home, it’s prudent to know if current events have any impact on the direction of mortgage rates. After all, the direction of mortgage rates means you can buy more house for the same money if they go down, or less if they go up.

Does the outcome of the presidential election have any influence on mortgage rates? Up? Down? Remaining the same?

Mortgage Rates Are Determined by the Federal Reserve

Mortgage rates are determined by the Federal Reserve, which meets about eight times a year and looks at economic data. If the economy looks strong, they may decide to raise rates. If it looks weak, rates are sometimes lowered to stimulate the economy.

The governance of the Federal Reserve, which determines the direction of interest rates, was designed in part to remove it from partisan politics. Although the president of the United States nominates the chair of the Federal Open Market Committee (FOMC), they serve for four-year terms and cannot be replaced. In other words, the inauguration of a new president does not coincide with the ability to name a new Fed chair, although that will happen down the road, when the term is up.

The governors of the Fed serve 14-year terms, and also cannot be removed. That means, for example, that the overall governance of the Fed cannot be removed because an incoming president doesn’t like their monetary policies.

Federal Reserve

It’s the Economy, Not the President

The ultimate determinant of interest rate direction and thus mortgage rate direction is the economy, not who sits as president.

Rates currently are at historically low levels, making this a good time to buy a house.

A recent survey of economists showed a consensus that the economic picture would be strong in November 2016, with low unemployment and good consumer confidence.

However, the consensus on the direction of interest rates has changed several times this year, with an unexpectedly weak job report and the British vote to leave the European Union affecting plans to hike.

The best bet is to stay tuned to the economic news.

 


House Hunters: How Will an Increase in Mortgage Rates Affect Your Bottom Line?

The Federal Reserve Board has been talking about interest rates a lot lately, and has made it clear that an increase will probably happen soon. Back in September, the real estate community breathed a collective sigh of relief when they thought it would be approved, and they decided to wait. But the Federal Reserve was clear that it would be brought up again before the end of the calendar year. People who are currently searching for homes to buy know that mortgage rates will make a difference in their budgets, so it is important to know what to expect.

If mortgage rates increase, then obviously homeowners will either have to pay more each month for a home, or decide on a lower-priced house. Because the rates haven’t been increased in a while, it is expected that the change will be small, and then they will assess the change in the economy.

For a home that costs $200,000, the monthly payment on a 30-year loan with a 4% interest rate is $955. Should the mortgage rates increase to 4.5%, then that payment jumps to $1013, and a 5% rate translates to $1074 each month. House hunters will need to decide if they are willing to pay more each month, or if they need to search for homes in a lower price bracket.

In addition to monthly payments, the increased rate will change how much interest is paid over the life of the loan. Just a half of a percentage point equates to tens of thousands of dollars in interest over 30 years for most mortgages.

The Federal Reserve Board is scheduled to meet on December 6, 2015. October’s employment reports were strong, with good job creation numbers, and lower unemployment. As a result, it’s safe to say that interest rates will probably increase after that meeting. For home buyers who want to take advantage of lower rates, lock in a rate now and get serious about choosing a home.

For assistance in finding the right mortgage for your situation, contact us.