We’ve been spoiled by ultra-low mortgage rates for the last several months. We saw 30-year mortgage rates go down into the mid two’s on conventional and government loans. These interest rates were brought on by the pandemic, the job market uncertainty, and the broader United States being in a holding pattern about what’s going to happen with the broader economy. Doom and gloom throughout 2020 along with lack of consumer optimism help contribute to ultra-low mortgage rates. Adding in as to who would win the presidency which created further uncertainty in the markets helped drive rates lower. Fast forward to 2021, there is a new administration and ongoing talks about the new stimulus plan. This new stimulus is promoting concerns of inflation within the economy and as a result, both stocks and bonds are feeling the pain of an inflationary environment or rather a potentially inflationary environment. As such, mortgage-backed securities are deteriorating pushing mortgage rates higher. Here is how to handle the present situation with regards to mortgage rates…
We are in an environment right now where there’s still a ton of leg work that has to happen in order for the economy to get back to a positive state. Covid-19 is still a broader concern for the United States, as is the vaccinations, consumer optimism is not at peak levels yet, the job market is stagnating, these things in combination with any further negative economic information that is inevitably going to come out of this environment probably will keep mortgage rates relatively low historically speaking simply put here’s how the math plays out.
Let’s say you where you were looking at a $400,000 mortgage a few weeks ago at 2.75%. Now you’re looking at that $400,000 mortgage at 3.25%. The .5 difference in rate translates to $108 a month of payment, $108 a month of payment can be offset by paying off a credit card for example, or another type of consumer loan. So the name of the game right now if you’re buying a home is to just breathe and relax. Let the loan officer you’re working with qualify you at a higher rate than what the prevailing market rate would be to hedge against mortgage rate movement-plan worst-case hope for the best and come out somewhere in between. Remember interest rates are cyclical in nature, the rise we have in mortgage rates more than likely is going to be temporary and we’re going to be poised for a bounce followed by a subsequent trend back down, as a byproduct of a bleak outlook for the economy.
Just this week the Federal Reserve came out and said they’re going to keep interest rates low for the future which is a signal they’re not optimistic the economy is out of the woods. Remember when there is negative economic information coming out that is typically good news for mortgage rates if it’s not inflationary, right now we have both. Inflation is the arch-enemy of stocks and bonds. If you’re refinancing the opportunities would be to pay off debt, do home improvement, go from 30-year to 15-year terms, drop monthly PMI, and consolidate debt.
The best strategy would be to get your mortgage application in now. Work with a lender who specifically understands the markets and can articulately explain when the best time to lock or float your interest rate is. You need to be looking for a mortgage professional who has a good price but is also advice-driven and understands the nature of what’s transpiring with the markets and can properly advise you both from an economic standpoint as well as a financial standpoint. Not all loan officers are created the same-think about that next time you’re applying for a mortgage.
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