By Mike Miles
Every once-in-a-while I will post something about interest rates. I try to make it sporadic so as to not bore you each week with dense data regarding rate analytics. But this week, if you’re even thinking of buying a new home or refinancing your current home, I encourage you to read on.
Interest rates have been all over the place lately, and I’m advising borrowers to lock their rates … even if they don’t have a house picked out yet (more on that reminder below). It’s tough to convince borrowers to lock, and that’s understandable considering rates have been at, near, or below historic levels for much of the past five years. We have become spoiled by cheap money, and there seems to be a little bit of sticker shock when rates creep up higher.
The bad news is that rates have been increasing … albeit slightly … but consistently. This was expected considering we’ve endured a few Fed rate hikes. While the Fed rate increase isn’t a one-to-one ratio for mortgage rates, there is an indirect effect that occurs. The good news is that the increase is incredibly slow up to this point. That said, December could accelerate that temporarily. Here’s why.
First, it’s holiday season. It’s very normal for mortgage rates to trend upward during the biggest month of the year for consumer spending. If consumer spending doesn’t meet expectations, there is a possibility rates either don’t move or will dip slightly. That isn’t expected this year.
Second, tax reform is front and center. The actual tax bill is over 500 pages … could you imagine how quickly you’d fall asleep if you started reading that? A small part of the bill will affect housing. The market is waiting on the final revisions as Congress still has the bill with the Senate and House varying slightly on some things. The two issues set to affect housing are the mortgage interest deduction and property tax deduction.
The current mortgage interest deduction has a maximum allowed loan limit of $1,000,000 as being eligible for the deduction. While the Senate bill retains that amount, the House bill cuts it in half. Additionally, the property tax deduction is set to be limited to $10,000 each year.
If the House version prevails, and the maximum finance amount for mortgage tax deductions is lowered to $500,000, it will most likely cause interest rates to increase in the short term. The reason for a rate increase would have more to do with the market’s reaction to the change versus the actual resulting fallout. There are fears these reductions will affect both home values and the desirability of home ownership, but it will take years to quantify that.
My objective with providing this weekly column is to provide timely and educational information to help consumers make informed decisions. My strong suggestion this week is simple – lock in your rate. If you are a home buyer and currently looking but haven’t found one yet, we can still lock a rate for you. Call us to learn more.
This weekly Sponsored Column is written by Mike Miles of Fountain Mortgage. Located in Prairie Village, Fountain Mortgage is dedicated to educating, and thus empowering, clients to make the best financial decision possible for their situation. Contact Fountain today.
Mike Miles NMLS ID: 265927; Fountain Mortgage NMLS: 1138268