This is a guest post by Joseph Kelly, mortgage expert and president of ArcLoan Mortgage Management.
For most people, our home and mortgage are both our greatest asset and our greatest debt. And many mortgage-holders and homebuyers might be wondering what the new year might have in store for them.
Even before factoring the surprise of President-elect Trump’s victory, nearly everyone’s crystal ball has been pretty cloudy when trying to predict interest rates and the mortgage market. At this time last year, mortgage rates were hovering around 4.01%. Almost every forecast predicted rising interest rates in 2016, yet mortgage rates started to fall in February and came very close to their lowest point in 30 years by July. Go figure.
We will soon have a new administration that is still shaping its policies and direction. The average mortgage rate for the week ending Dec. 29, 2016, was 4.32%, which is higher than the rate one year ago but still quite low, historically speaking. So the sky is not falling … yet.
Looking into my crystal ball, it is still hard to foretell anything solid at this time. After much research along with studying various expert forecasts, I’ve concluded what is certain: not much.
Let’s apply some common sense. When rain is in the forecast, do you grab an umbrella on your way out the door? When you’re in for a long drive, do you check traffic before you hit the road? When the Waze app tells you there are police reported ahead, do you slow down until you are sure?
Maybe you do, or maybe you don’t. It seems to me that common-sense suggestions are, well, just that.
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2 Certainties With the New Administration
Let’s apply that principle to all the hopes, fears, goals, and unknowns of the upcoming Trump administration and how they might affect your mortgage.
1. There Will Be Change
Change is not necessarily a bad thing. In fact, change holds great potential for things to improve. The promise of bringing change is one of the main reasons Trump won the election.
The President-elect has stated that he intends to make serious changes in housing and mortgage regulations; return Fannie Mae and Freddie Mac to private hands; deregulate banking and lending laws that have come into place in the last 10 years; and much more.
If the Trump administration moves forward with plans to spend large sums on the country’s infrastructure, that will also add pressure to inflation, and thus potentially raise mortgage rates.
2. Rates Will Go Up … and Down
Financial markets do not like uncertainty. It is difficult to make plans when the new administration brings a number of unknowns—at least for the immediate future. Market volatility can bring mortgage rate volatility.
For nearly 30 years, people have asked me what rates will be doing. However, the truth is no one can predict them. That being said, in 2017 there is a higher likelihood that mortgage rates will go up.
When the economy is doing well, inflation becomes a greater concern. When there is inflation, or even fear of it, mortgage rates rise. This point is important for everyone to understand: Inflation is bad for mortgage rates.
But rates will also go down.
There are always dips. Rates will often dip on bad news both nationally and globally. Drama from the White House tends to create drama in the financial markets.
In addition, the Trump-induced rally in the stock market will not last forever. It never does. When that market corrects, expect mortgage rates to benefit.
How to Be Prepared No Matter What Happens
Whether you have a mortgage or want to get one in 2017, there are steps you can take to be ready for the new year and the potential changes this new administration could bring.
1. Mortgage-Holders Should Take Inventory
Take 10 minutes and ask yourself the following questions:
What is your current rate and term (i.e. 15-year, 30-year) and how many years do you have left on it? Can you benefit if rates go low enough for you to refinance with little to no cost?
Are you in some type of an adjustable rate mortgage (ARM)? If so, when will it change, and what are the risks if rates go higher?
Do you have the need to take cash out for home improvements, debt consolidation, college tuition, and so on? If so, try to focus on possible refinance options, regardless of where rates are, compared to the monthly and total cost of any other options.
2. Buyers Should Get Preapproved
Buying a new property is both exciting and stressful; often very stressful. If you are thinking about purchasing in 2017, some of the potential Trump changes may help you, and some may hurt you.
My best advice is to try not to stress over those things you can’t control, and focus on those you can. Get a true preapproval—not just pre-qualified—from a lender that offers them as early in the process as possible. Most just offer what is called a pre-qualification even if they call it preapproval. If you don’t provide an application, documentation, and have the lender run it through Underwriting, it is a pre-qualification and not a true preapproval.
Then you can focus on the purchase process without the stress of wondering if you will be approved, or the pressure to get mortgage approval in a short timeframe.
3. Have a Plan in Place
I call this “mortgage management.” No matter what changes the coming administration brings, have a plan in place to take action when the opportunity comes.
This is not just about mortgage rates falling. It may also mean when your property’s value increases enough for you to get rid of mortgage insurance, or take out cash if needed.
It could also mean paying attention to changes in how lenders view credit, and improving your credit rating may help you lower your rate even if mortgage rates have been rising.
4. Find the Right Mortgage Professional
Find a trusted professional who will alert you to important changes that may affect you. Rates regularly improve, and significantly. However, it often takes weeks before mainstream media gets the word out.
Very few people pay attention to the mortgage news and rates daily. But most experienced and ethical mortgage professionals out there do. I call this “concierge mortgage service.”
Having a relationship with an experienced professional is of great value. But it’s important to take the time to seek out those professionals. Try to avoid the “puppy mills” of mortgage banking. Look for people focused on helping you rather than selling to you.
You might be one of the many millions of fortunate homeowners currently benefiting from a 30-year rate between 3.25% and 3.75%, or a 15-year rate near 3%. If you are, the risks or rewards from the effects of Trump’s policies on mortgages will likely not matter to you, unless you plan on buying or selling.
You will need to pay attention if you:
- Have a rate above 4%, or
- Are in an ARM, or
- Are paying mortgage insurance, or
- Could not refinance in the past four years due to credit, home value, or other factors
In 2017, we face uncharted territory with a new administration that has proposed sweeping changes. This is the very best “fortune” I can give you from looking into my somewhat cloudy crystal ball. As the saying goes: Prepare for the worst and hope for the best.