In case you haven’t been watching the market, this week mortgage interest rates spiked higher. All lenders have been raising rates, not only in the morning, but two or three times throughout the day.
If you were quoted 4.5% and now are being quoted 5.125%, your loan officer is not lying or pulling a fast one. That is what the market has done this week. (Your interest rate will depend on your credit score and down payment as well as the type of loan. This is just one example.)
Interest rates remained low for longer than any of the experts predicted after the great recession. Now, with the robust economy and the record low for unemployment, the Federal Reserve Board is raising short term rates to protect the economy from inflation and recession. Mortgage rates are following suit.
The silver lining is that higher interest rates are good for your savings and investments.
You must speak with your loan officer about locking in your interest rate. Rates have been moving upward all year, and the prediction is for another increase in December.
The trend is not your friend! I hope we might see a settling down a bit next week, but I do not know if that will happen or not. If it does jag downward, my recommendation is to lock fast, because it might not last the entire day.
January 2014, financial experts and mortgage professionals said interest rates would rise by the end of the year. They remained fairly flat.
January 2015, same thing with rates remaining fairly flat.
January 2016, same thing and rates remained fairly flat until this month. At the beginning of November, interest rates started climbing, and they haven’t stopped. Day by day, we see small increases that add up over a week’s time.
One financial predictor has forecast 30-year fixed rates at 4.5% by the end of December.
The Federal Reserve Board has said they will likely raise rates in December. And remember, the market is anticipatory. So if higher rates are coming, lenders react now by raising rates so they aren’t caught short-handed.
If you have been thinking about refinancing — possibly into a shorter term or getting cash out — do not delay another day. Get your application in and get your interest rate locked.
If you want to be a home owner but are waiting until after the holidays, that’s a bad idea. You find less competition among home buyers and better rates now than in January. Get your home now, lock in your rate now, and set the closing for after the holidays. You can wait to move, but you can’t wait to get your financing in place if you want the best deal and lowest monthly payment.
If you are in California or Washington, I am happy to help you as I am licensed in those two states. If you live elsewhere, I suggest that you contact a full-service mortgage lender. Forget the Big Banks who have a terrible reputation on so many levels. A full-service mortgage lender has both their own money to lend and can shop wholesale lenders as needed.
My next post will be questions to ask your loan officer. I wanted to get this warning out about interest rates as soon as possible. No more procrastinating! Consider this is your last call before rates go even higher. Feel free to pass this on via social media.
Since I don’t have a crystal ball to tell the future, let’s look at the principles and then see if we can come up with a conclusion.
Factors and Principles that Determine Interest Rates
- The election result was a surprise to investors. Investors don’t like surprises. This caused a rapid selling of bonds, which pushed interests higher by .125 percent overnight.
- Any rapid change in rates settles back down along with investors’ nerves. Remember what happened with Brexit?
- Uncertainty brings higher rates.
- Good economic news brings higher rates.
- Interest rates were trending upward anyway, irregardless of, and before, the election. Last year at this time, 30-year fixed rates were averaging 3.5%. Now they are closer to 4%.
- Sometimes the market just goes with the momentum — for awhile.
- Other factors, larger on the global economic stage, influence interest rates more than the U.S. election. Specifically, the European Central Bank Announcement coming next month (and the anticipation of it) is having a greater impact on interest rates than President-elect Donald Trump.
- The President does not set interest rates. The global economic condition sets interest rates.
- The market is anticipatory. Investors try to guess what will happen tomorrow and then react accordingly today.
Back to our headline question: Where are interest rates headed? I’m sorry I can’t tell you exactly what will happen, but your crystal ball is as good as mine. If you are nervous about rates going up, lock in your rate and be secure.
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If I can help you with a refinance or home loan, I am licensed in California and Washington, NMLS 1294134. Send me at email telling me what you need.