Are Mortgage Rates Set To Rise?

Are Mortgage Rates Set To Rise?Mortgage rates are up. According to Freddie Mac, the cost to finance a home has gone from 3.48 percent at the end of June to 3.52 percent last week for 30-year loans with 20 percent down.

Savvy readers will notice that rates have risen a total of .04 percent. For a $150,000 mortgage the difference is $3.35 a month.

Of course, if we want a little perspective, a year ago the rate for the same loan was 3.79 percent.

I bring these numbers up because there are worries that mortgage rates will rise after the Federal Reserve governors’ meeting during the first week of November. In fact, the reason that rates today have gone up is largely in response to a possible Fed action just before the national election. Lenders want more today to offset the risk of a possible Fed bank rate hike.

While a lot of people would like to see a Fed rate hike it’s hard to imagine that rates will rise before the national election. Such an increase would draw attention to the Fed, especially on Capitol Hill.

Mortgage Rates & The Fed

The truth is that the Fed is stuck in a worse position than usual.

Some within the Fed would like to see higher bank rates because that would puff up bank profits. Others wonder whether higher bank rates — effectively an economic tax on everyone — would slow the recovery or even set off a contraction.

To make matters more complex, in September presidential candidate Donald Trump explained that Fed Chair Janet Yellen was “obviously political and doing what Obama wants her to do, and I know that’s not supposed to be the way it is.”

In addition to an economic debate regarding interest rates, we also have a political argument regarding the same issue.

“The people that were hurt the worst are people that saved their money all their lives and thought they would live off their interests and those people are getting just absolutely creamed,” said Trump speaking to CNBC. “The ones that did it right, they saved their money and cut down on their mortgages and did all the things they did everything exactly right, and now they are getting practically zero interest on the money they worked so hard for over 40 years. I mean, those people have really been — you can almost say discriminated against. The interest rates are kept down by President Obama. I have no doubt that that’s the reason they are being kept down.”

You can see the conflict here. If the Fed raises rates it will be accused of colluding with Clinton, Obama and the banks. If the Fed let’s rates stay in place it will be criticized for not helping savers, borrowers, and retirees. In either case efforts to make the Fed more “transparent” are likely to move forward on Capitol Hill.

There is no good way out of this problem, at least not in November with a Fed meeting scheduled just before the election.

The better option is to duck and do nothing — at least until the mid-December meeting.

(Photo courtesy of Inspiration De)

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