Each year in the wintertime interest rates tend to worsen about .25% across-the-board. Here is what it may mean for your home loan application…
Beginning each year around December 5, mortgage rates typically, worsen due to heavy bond market activity and the trend continues till approximately January 15 where rates trail back down. Consumer confidence and retails sales are strong at this time of year, as people gear up for the holidays. Additionally, financial professionals re-balance their client portfolios by moving money around completing trades in the very fast few weeks of the calendar year. Money moves such this like can heavily sway mortgage rates and subsequently what payment you’ll be making for the next 30 years.
The fixed income market presents a safe haven for investors and financial professionals alike looking to get a safe guaranteed return on their monies. People move the monies out of the bond market and into the stock market when they are feeling optimistic about the future of the economy as stocks can present a big upside in trading. When people are not so optimistic and the economy is unstable and uncertain, the bond market is the investment alternative. Rising bond market yields generate and support low mortgage rates. In order to drive such activity, the money usually comes at the cost of selling stock, meaning people are moving monies out of individual equities and into the bond market. This is precisely why mortgage lenders closely watch the fixed income market likes hawks, in particular, the daily trading of Fannie Mae mortgage bonds (FNMA). Any trend directions signal mortgage pricing changes which in turn affect rates borrowers pay on home loans.
Other scenarios that may influence the annual Santa Bubble include the following:
→Exposure To Taxes-companies and individuals who had a capital losses may be influenced to make a year-end money moves to reduce their exposure to tax liability. Such events can further cause monies to flow out of the bond market.
→Bond traders are paid to move money in order to best optimize returns for their clients. Make no mistake bond traders are paid based on the movement of money, whether it results in a gain or loss, they are still compensated.
Does Locking-In A Mortgage Rate In The Holiday Season Make Sense?
This depends on your deadline for wrapping up your transaction. If you’re buying a home you may be under contract and subsequently may not have a choice and you may be pressed to perform on a contract which means accepting a market rate. Granted you could always refinance the loan in the future, but in situations where push comes to shove, you may just have to make a decision. A skilled and experienced mortgage professional should be able to show you rate and pricing scenarios so you can best determine what makes the most financial sense for you during your loan application process.
Refinance borrowers have a little bit of a different sense of urgency. While the goal is still to financially benefit typically, refinancing is more of a motive of a gain not so much being under the gun like you are when buying a home. If you can refinance, lower your interest rate, or shorten your term, and do so that allows you to save money while continuing to chip away at the loan over time, even if it’s in the holiday season, it still could prove to pencil. Alternatively, can always apply with a mortgage company and float your interest rate. This can be an ideal situation if you’re waiting for a certain interest rate and/or payment to be within your grasp in relationship to what you’re trying to accomplish.
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