Category: Interest Rates

How Donald Trump’s Presidency Will Affect Interest Rates

Throughout his campaign and following his win in the November election, President-elect Donald Trump has had a massive impact on our nation and around the world. Once he is sworn is as Commander-in-chief, President-elect Trump will continue to influence many aspects of everyday life, including buying and selling real estate. As we look ahead to what the next four years of a Trump presidency holds, our nation is pondering what to expect from his administration.

A few weeks after the November election, the Los Angeles Times reported that, “Long-term U.S. mortgage rates continued to surge this week in the aftermath of the election of Donald Trump as president.” Rates increased by approximately .25% after the election.

Put in proper perspective, it’s important to understand that the Fed has kept rates artificially low for many years in an effort to keep our fragile economy from imploding. As we finally move forward into a more healthy economy it’s only fair to expect these controls to give way to a normal market and a more sound fiscal policy. (You can’t kick the can down the road forever!) Even though mortgage rates have increased, they are still very close to historical lows and they are not expected to increase much more in the near future.

Admittedly, the prospect of higher interest rates isn’t what one wants to hear if they are considering buying a new home. Higher interest rates have a negative impact on the amount a home a person can qualify for but at the same time, an increase in interest rates could potentially drive down the overall price of homes. Higher interest rates can make refinancing less feasible for homeowners who are looking to refinance their homes because the savings won’t be as great and as home values decline, so does their equity.

The silver lining is that the prospects of a Trump presidency is having a significant >positive effect on our economy. More jobs and higher paying jobs that are expected from a Trump presidency will almost certainly bode well for would-be homebuyers and home sellers.

Positive and Negative Outlooks are Both Impacting Interest Rates

In anticipation of Trump’s ascension to the most powerful job in the world, investors have been putting as much capital as possible into the US stock market in hopes that Trump’s presidency will yield the economic boom that analysts are predicting. In order to put their put their funds into stocks, a lot of investors have withdrawn money from the US bond market.

As the strength of Treasury bonds decreases, the interest rates that accompany mortgages rise in comparison. As the stock market rises, the mortgage bond market dips which causes mortgage rates to rise. This is normal. There have always been and will always be ups and downs in both markets.

Either way, the result is the same. Whether investors are excited or downtrodden about a Trump victory, it’s a given that the housing market – as well as other segments of our economy – will feel some repercussions while we adjust to the policies of the new Administration.

What Does This Mean For You?

The ability for an average person to buy a home is slightly more difficult than it was a few months ago. However, a new home is not out of reach for most prospective home buyers. It might take a little more time and patience but in most cases your efforts will be rewarded. Home buyers might need to expand the scope of their search parameters. Keep in mind that your first home is not likely to be your forever home. It may not be exactly where you want it to be and it may not the home of your dreams – it’s a stepping stone.

The key is to get into the home as soon as you can. Chances are that you’ll be able to earn some equity and sell for a profit in a few years. The money you earn from appreciation on your first home is what you will use to buy your second home and you will get closer to meeting your ultimate housing goals then.

In today’s environment, it’s more important than ever to work with a knowledgeable, dedicated loan officer to help you navigate through the home buying process. If you live anywhere in Texas, Dorothy Erminger is a great resource for potential homebuyers. Dorothy will guide you through the loan process and you can rest assured that your home buying experience will be straightforward, pleasant and easy-to-follow.

Dorothy and her colleagues work tirelessly to ensure their clients lock down the best loan program for their unique needs at very competitive interest rates while minimizing unnecessary costs. She is known by her clients as well as industry professionals as a stickler for detail – which translates to smooth closings – on time, every time! Owning a home is part of the American Dream, and it’s Dorothy’s goal to help you turn your dream into a reality.

Interest Rate vs. Closing Costs: A Simple Calculation

When helping my clients evaluate their mortgage options, I give them choices between the lowest interest rate with standard closing costs and a higher interest rate with lower closing costs.  Some people are most concerned with the monthly payment being as low as possible, while others want to save their up-front money. It’s a simple calculation to see which option is best for my clients.

Here’s an example with a $350,000 house and $280,000 loan amount:

Option 1: 30 Yr. Fixed Interest Rate: 4.375% (4.425% APR)

Closing Costs: $2560

Monthly P&I: $1398

 

Option 2: 30 Yr. Fixed Interest Rate: 4.5% (4.55% APR)

Closing Costs: $110

Monthly P&I: $1418

So for an extra $20 in monthly payment and .125% in rate, one can save $2450 in closing costs.  Is it worth it? Divide 2450 by 20–it takes 122 months for the higher monthly payment to be more expensive than putting extra cash down up-front.  So if you are going to have the mortgage for more than 10 years, then it’s worth getting the lower rate.  If you think you will sell or refinance before then, it’s better to save the money at closing.

If you are considering buying or refinancing a home, give me a call at 512-587-9936.

MacKenzie Price

Sr. Loan Officer

Capstar Lending

512-587-9936

mackenzie.price@capstarlending.com

NMLS#226753