Donald Trump could start a war with a tweet. All jokes aside, though, his policies are sometimes revolutionary. He has the power to move markets and influence mortgage rates.
There are hundreds of sites covering what his policy changes might mean for mortgage rates. You might get some misinformation along the way, so we’re going to explain what might really happen now that he’s in office.
Trump’s Potential Impact on Mortgage Rates
The primary indicator of mortgage rates is the Fed funds rate. This means the stance of the Federal Reserve will dictate what mortgage rates will be. Trump already receives mainstream credit for today’s $20-trillion stock market.
The higher businesses go, the more innovation can happen. Automation and artificial intelligence have promise. More and more Americans are becoming self-employed and working online from home.
Pair the two and you can start to see a different type of workforce – but what’s under the surface? It’s a stronger US economy with better-paying jobs and plenty of good, long-term investment opportunities.
If all this plays out, the US will be performing sufficiently for the Federal Reserve to raise interest rates back to the five-percent and higher range. This would increase mortgage rates enough to boost premiums by hundreds of dollars a month.
Trump Has Already Made an Impact
Only a few weeks into the new administration and the market is already off to a rocky start: the new President has quickly made homeownership more expensive. Within hours of taking office, he suspended President Obama’s FHA rate cut for average credit borrowers. This reversal effectively means FHA-backed mortgage insurance premiums will be flat or increasing in the near future.
Homeowners are now missing out on approximately $20 a month in savings on every $100,000 in FHA home loans. This impacts anyone shopping for a home as well because the premiums after you buy will not be as cheap as you thought. Premiums could increase in price and it’s even possible for the previous rate reduction to be recalled too.
Retracting the FHA insurance premium rate cut was a move which signaled further increases in US house prices. There’s now more pressure on buyers to enter the market before rates start increasing continuously.
The Federal Reserve is already anxious to increase rates and wants to do so multiple times before the year’s end. Each time a rate hike occurs, it means your mortgage payment goes up.
FHA Loan Applications Falling
The month of January saw a 14-percent drop from its 2016 high. FHA refinancing applications rose seven percent from the previous year, showing the stigma surrounding expectations over higher home buying costs.
This impacts borrowers and homeowners planning to refinance the most. It’s particularly damaging to those with credit scores below 680, as they were the ones who received the rate cut.
Where Homeowners Have It Good
The US housing market is rising to new heights. As of February 2017, refinanced mortgages made up 59 percent of all home loans. This is because a rising market unlocks the doors to favorable terms sooner for recent home buyers looking to refinance or fix in rates. You’ll have access to better mortgage rates after gaining equity in your home, even if it’s just due to the market going up it will benefit you.
The upward pressure makes it a lucrative opportunity for home buyers with less-than-perfect credit. You can actually use your home mortgage as a credit-building mechanism too.
Furthermore, with an FHA loan (which requires a 580 FICO score), it’s possible to finance a home for you and your family. However, keep in mind that most lenders still want at least a 620 credit score.
Trump’s Impact on the US Economy
It’s imperative to look at the full picture. The US economy running strong is justification for the Fed to increase rates. When operations aren’t in lockstep, the current low-interest rates could hold steady or even drop. Negative interest rates are even possible in the worst of circumstances.
Leading into Trump’s inauguration, the Federal Reserve’s intention was to hike interest rates three or four times this year. Forecasts put the Fed funds rate at as much as three percent when 2017 ends. Such a move would result in a premium increase of $125 or more on a $100,000 25-year mortgage.
Trump’s perspective on the US economy casts a different light from the rhetoric of recent Federal Reserve meetings. The President believes the American dollar is too strong and currently supports the demise of the strong dollar policy. Such a move could devalue the greenback and result in a change in conditions for the Federal Reserve.
His unpredictability is what makes everything so hard. Notwithstanding damage to the strengthening greenback, outside of currency speculation, he has plans for a trillion-dollar investment in America. This could go boom or bust, for if things prosper, the US will have its economy running on all cylinders.
It’s not Trump that’s leading mortgage rates. However, he can have an indirect influence based on how his policies impact the economy. You’ll want to pay attention to the Federal Reserve’s statements. They influence mortgage rates the most, and any time interest rates rise, you can expect home lenders to follow suit.