The Election and Mortgage Rates

 In Common Questions, Refinancing your Mortgage

Many people are calling us these days asking if we think mortgage interest rates will go up or down after the election.

Here’s what you need to know.

Mortgage rates are determined by the demand for the mortgage bonds that Fannie Mae and Freddie Mac sell.  Mortgage bonds are sold at auctions, and if a lot of investors want to buy them, they bid the price up, just like people do at any other auction.  If the price of the bonds goes up, the amount of interest that Fannie Mae and Freddie Mac have to pay the investors goes down.  The interest is called the “yield” and directly affects the interest rates that lenders charge for a mortgage.  So, if a lot of investors want the bonds, mortgage interest rates go down.  If fewer investors buy the bonds, mortgage rates go up.  

At the moment, the Federal Reserve, which is the central bank of the United States, is buying tens of billions of mortgage bonds each month, in an attempt to keep mortgage rates extremely low.  This is known as “quantitative easing”, and it is a policy that works wonderfully.  The Fed buys bonds, mortgage rates stay low, and the economy gets better.  It doesn’t happen immediately, but it does work.  

The question, though, is how does the election affect rates, if at all?  

The Fed has said they are going to continue to purchase mortgage bonds until the economy is back on track, regardless of who wins the election.  The Fed is not controlled by the government, so it doesn’t really matter who wins the election.  

Here are the interest rates from immediately before and immediately after the last four presidential elections.

In 2004, when Bush (Republican) won the election, rates went down by 0.04%.  Basically, no change at all.

In 2008, when Obama (Democrat) won the election, rates went down by 0.24%.  A slight amount lower.

In 2012, when Obama (Democrat) won again, rates went up by 0.06%.  Basically, no change at all.

In 2016, when Trump (Republican) won the election, rates went up by 0.46%.  That is a significant increase, but to blame increased mortgage rates on Trump would not be correct.  Rates went up because fewer investors purchased mortgage bonds, and for no other reason.  

Mortgage rates are now at historic lows.  It has nothing to do with Trump, Republicans, or Democrats.  It has to do with the Federal Reserve purchasing billions of dollars of mortgage bonds each month.

The bottom line is that there are plenty of people who will tell you that rates will go up or down, depending on who wins the election, but it really doesn’t matter very much at all.  So, if you are waiting for the election to purchase a house or to refinance an existing mortgage, you are really just gambling.  Rates might go up, rates might go down, and rates might stay the same.  Don’t listen to anyone who tells you they know where rates are going.  They are gambling with your money.  

Our advice over the years has always been the same.  If you want to buy a house, buy a house.  If you want to save some money by refinancing your mortgage, refinance it.

If you want to buy a house, contact us for a pre-approval.  If you want to see how much you can save by refinancing, contact us for a report that shows your potential savings.  It’s easy and it’s free.

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