Mortgage Matters

Government policy affects mortgage interest rates for home loans. Almost an understatement, right? Of course it does. Government policies affect everything. But just to be thorough and get this article going the right way, I need to add that it is not only our government. This reality includes governments of other industrialized countries, as well. No one reading this could have possibly missed the numerous effects of government influence on rates in the past few years. No one involved in a loan process today— originators, processors, underwriters, and borrowers— has not felt the weight of the hands of governments in determining the cost of a mortgage loan.

As an example, when Greece defaulted on its loans from other countries we saw a flight to quality that produced slightly lower interest rates. “Flight to quality” is an interesting term with a somewhat complex meaning. The Greek effect, as well as the financial difficulties suffered by other countries, have caused world investors to buy U.S. Treasury bonds, a safe place for their investments. In the global financial world, this is known as a “Flight to quality” because when enough of this Treasury buying occurs, the yield on treasuries decline. The effect of this dip in the Treasury bond yield results in the lowering of mortgage rates. Mortgage investors watch stock market trends as well as the Treasury yields in setting the mortgage rates.

I follow the yield on the 10-year Treasury bond to predict the direction interest rates will go. In 2015, the 10-year Treasury yield was at 1.9 to 2.1 percent with 30-year interest rates at 4 to 3.875 percent. During the first half of 2016, the Treasury 10-year yield moved down to 1.8, 1.75, and even lower. The 30-year interest rate has also moved down to 3.75 and 3.625%. The cause for the lower rates this year over last year is in part this flight to quality caused by investment fears around the world. Government decisions, like the Greece default, stimulate these fears.

Politics affect confidence and therefore interest rates. The way governments handle a terrorist crisis may have an effect. Any uncertainty can have a negative effect on world stock markets and therefore on the cost of money. If England removes itself from the European Union, be sure that will have its effect.

This election year in the U.S. has caused uncertainty and therefore has kept rates modest. The Federal Reserve’s decision to keep bank rates at their current low level has also contributed to our low mortgage rates. Does this mean that after the election we will see higher rates? I would say that is a good guess.

Wewill vote, watch, hope, invest wisely, and depend on experts, both locally and internationally, to guide us by tracking decisions our chosen leaders make. The mortgage broker serves as a go-between from your home purchase to the world of fluctuating interest rates. We brokers watch the various markets for you and know, with little to no error, what you need and when you need to lock it down.

Jim Gay was a real-estate broker for 20 years and has been a financial consultant to Fortune 500 companies. He is currently a broker/owner of The Mortgage Place ( 505-986-9080) and can be reached at jim@ jimgayhomemortgage.com

JIM GAY