Mortgage Rates Soar over 4.1% After Trump Win
Luke Osborne November 14, 2016
There has been an increase of selling in U.S. Bond markets that has increased mortgage rates up-up-and away. We all knew the market was going to be more volatile after the election of President Trump. Rates have increased half a percent higher since Donald Trump has become President-Elect, and he has not even taken office.
What it really comes down to is that the Bond Market isn’t really sure what our new President Elect plans are.
Home-buyers face affordability dilemma
Only time will tell if the surge in mortgage rates will stick. If it does, it could spell trouble for some low- to moderate-income home-buyers who will face a double whammy: costlier mortgages and rising home prices.
The median existing-home price in the U.S. in September, the most recent month for which complete data are available, was $234,200, according to the National Association of Realtors. That was up 5.6% from $221,700 in September 2015.
Big rate surges like this one are usually a “knee-jerk reaction” to uncertainty, says Steven Bogan, regional managing director with Glendenning Mortgage Corp. in Toms River, New Jersey. The market had counted on a Hillary Clinton victory based on all the polls and media coverage, and her presidency would’ve been a continuation of current regulations and policies for the bond markets, he says.
“By Trump winning, all that goes out the window,” Bogan says. “As people are considering potential impacts, things are moving in different directions. A lot of his policies for infrastructure growth and taxes are likely to trigger inflation down the road. That’s why markets are reacting and pricing in higher rates to compensate for future inflation.”
How higher rates will affect consumers
As with the Brexit vote, in which voters in the United Kingdom opted to leave the European Union, the immediate response in the markets was swift and severe. Then, as time passed, everyone realized the world wasn’t going to end, Bogan says. So although mortgage rates have jumped this week, they are still fairly low compared with mortgage rates a few years ago.
“My general policy is if your numbers indicate it’s to your advantage to refinance or buy, then you probably should do it,” Bogan says. “Trying to wait out or time the market … sometimes you’ll win, but sometimes you’ll lose.”
For some borrowers, higher rates might make it less advantageous to refinance if they’re on the edge, Bogan says. For example, with a $200,000 loan, a difference of a quarter of a point in the interest rate can increase the monthly payment by $29 — and that adds up over the life of the loan, he says.
Perhaps the biggest impact of rising rates is on home-buyers already in the midst of the loan application process. If you’ve locked in your rate and are trying to get your documentation in, you’re in a time crunch to close your loan before the rate lock expires.
If it does expire, the rise in rates might be enough to move you from qualifying to not qualifying. That would put your entire loan in a pickle if you’re trying to scrape up money to pay lock-extension fees or a bigger down payment to keep your monthly payments affordable, Bogan says.