November 11, 2020
Well, it certainly has been an interesting week - both with the election and also with mortgage rates. For the 12th time this year, borrowers have record breaking rates to cheer about.
Interest rates on the 30-year fixed-rate mortgage dropped to 2.78%, falling 3 basis points from last week. The 15-year mortgage rate remains at 2.32%, and the 5/1 ARM inched up to 2.89%.
While the president doesn’t control mortgage rates, the 2020 election could still impact interest rates. Mortgage rates fell as the 10-year Treasury yield dropped 12 basis points to 0.78% on Wednesday, which could mean investors are worried about stimulus gridlock as votes are counted (and possibly contested). Mortgage rates generally track with the movement of Treasury yields. Experts believe rates will continue to move unpredictably as the country awaits for the final election outcome.
And the 2020 election winner will face tough choices. Will he cut federal spending to reduce the deficit? If so, what programs will be cut? Will they increase the deficit with greater federal spending? Will more federal spending set off a difficult round of inflation? Do the 2020 election winners raise taxes to cut the debt? Which taxes? Each choice will have far-reaching implications.
Meanwhile, if rates go up just a little, federal interest costs will soar. A 1% rate increase can mean hundreds of billions of dollars in higher federal interest payments.
FHA insurance costs and the 2020 election
The FHA mortgage program is a huge success. It’s collecting big money from insurance premiums at a time when there are few foreclosures. The result is a massive surplus. So, where does money generated from FHA loans come from — and where does it go?
In short, the FHA insures mortgage loans. This insurance allows borrowers to purchase with as little as 3.5% down. Borrowers pay insurance premiums to get FHA backing. And the insurance premiums collected by the FHA go into a reserve account.
The FHA is supposed to have a 2% reserve. In fact, the reserve is now greater than that.
So, what will the next election winners do about the FHA surplus? Keep collecting the money, or reduce FHA insurance premiums? The current administration says it won’t change FHA mortgage insurance rates. But under a different president, that could change. Lower premiums would allow more people to buy homes, something that can spark increased real estate sales nationwide.
The Federal Reserve and mortgage rates
The Federal Reserve is an independent institution charged with guiding the nation’s economy. So far in 2020, the Federal Reserve has cut the federal funds rate — the money banks pay for overnight borrowing — to near-zero levels.
While mortgage rates are not controlled by the Federal Funds Rate, the low-rate environment has certainly contributed to keeping mortgage rates low.
No matter who is elected, no one expects the Fed to raise rates any time soon. The coronavirus presents too big a risk to the economy to do that.
What it all means for you
Predicting what will happen to mortgage rates in 2021 involves a whole lot of “ifs” and “maybes.” And as history has shown, presidential elections can impact mortgage rates positively, negatively — or not at all. So what should you do if you want to buy a house or refinance in the coming months?
Stay on top of the market. Mortgage rates change on a daily basis. So when you’re close to closing, keep your eyes on daily rates — and be ready to lock when they’re in your favor. If you have questions about buying or selling a home, please give me a call! Tracy Curtis, Coldwell Banker Realty, 415-910-0599.
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