Monday, February 3, 2014

Fiscal Cliff and Mortgage Rates

The looming financial cliff facing the country is likely to have some impact on mortgage rates and home ownership. While nothing is guaranteed with respect to what might happen to mortgage rates, many economists are predicting that interest rates will move in the upward direction- something that will hurt potential homeowners and those looking to refinance their homes.

The Fiscal Cliff is a result of the end of the current tax cuts- set to expire January 1 2013, coupled with pre-determined cuts in federal spending. The uncertainty resulting from what might transpire will likely affect the market- and as is often the case uncertainty is typically not good for the economy. Projections include losses of jobs, reduction to the GDP and a pool of investors who are likely to become more cautious about their investments.

So how do mortgage rates play into all this? Mortgage rates are driven by the secondary mortgage bond market. Mortgage bonds are purchased by investors based on certain rates of returns. As the mortgage bonds yield a higher payout to investors the interest rates go up. The more investment dollars available to buy mortgage bonds the lower the interest rates go, and vice versa. If the fiscal cliff results in investors reducing the amount of investment dollars they place in mortgage backed bonds the market will respond by increasing interest rates to entice more investors to bring their dollars to the table.

So what does this mean for the average homeowner? Now is a good time to lock in interest rates for a refinance or purchase. Rates are at historic lows and are unlikely to drop further. The Fiscal Cliff may very well result in increased mortgage rates- so waiting to refinance or purchase is more likely to result in an increased interest rate than what the current market bares.

Most mortgages today take 3-6 weeks to close. Considering the upcoming holidays we recommend a longer term lock such as a 45 day lock for those looking to make a move at this time. To lock your loan, simply fill out the loan quote form on this web page, or call us at 855-2Trillion, or locally at 801-261-2617.

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