Mortgage rates at the end of 2016 edged higher but overall, most experts think that they will not go a lot higher in 2017. And regardless, the interest rates for home loans and refinancing are still historically very low.
As of May 2017, mortgage interest rates have stayed fairly level after edging up at the end of last year. For the last week of April 2017, Freddie Mac stated that the average mortgage rate was a very low 4%. Many home buyers and homeowners looking to refinance have been surprised in a good way because earlier in the year, analysts thought the rates would be in the 4.5% range by now.
The fact is that mortgage rates in May 2017 are about $35 per month less than they were at the beginning of 2017 on a $350,000 mortgage.
There also are some signs that mortgage interest rates could remain low throughout the rest of the year. Here are some of the big reasons why:
#1 French Elections
France voted for its new president on May 7, 2017. The preliminary polls closed at the end of April. There were two candidates: EU fan Emmanuel Macron and anti-EU Marine Le Pen.
Basically, since Macron won, it’s a status quo situation and mortgage rates would probably stay the same. He would not try to leave the EU, and this would make their economy easier to predict.
Le Pen however is sort of the Donald Trump of France. She would have encouraged France to leave the EU and the Euro. This would send waves of shock through the economy of Europe. This might aid lower mortgage rates. Investors run to mortgage bonds when the economy looks grim. This reduces interest rates.
Macron is leading, but if Le Pen wins, rates are probably going to dive, and you should be ready.
#2 Trump Tax Plan
Trump wants to cut taxes. It is not clear if the plan can get through Congress. Trump outlined the plan at the end of April. If the plan has trouble getting through Congress, it could drive rates lower.
Generally, if lower taxes are passed, this is a good thing in many ways. It drives economic growth and activity. However, economic activity drives inflation, and this will cause interest rates to rise. But economic activity puts more money in people’s pockets so higher rates in this context isn’t necessarily bad.
The healthcare bill in the GOP congress failed recently and this caused mortgage rates to drop. If the tax plan does not make it through, rates could drop.
#3 Federal Reserve Meeting in May and June
The Fed will meet two more times by mid-2017. Each of these meetings could lead to another hike in the rates.
But most experts do not think there will be a rate hike in early May. However, experts do think there is a 70% chance of a rate increase in June.
Those shopping for a mortgage should watch what the Fed says after its meeting. Its discussing its holdings of mortgage backed securities could cause markets to move.
Selling mortgage backed securities could cause the rates to go up. Supply could go up and drive down demand. You may expect the rates to rise if the Fed states that it is going to sell its MBS in the near future.
Note – by the time of the June meeting, a hike in the Fed Funds Rate may be a foregone conclusion. Members of the Federal Reserve will make hints about the rate hike in speeches that lead up to their next meeting.
The idea is to help investors to slowly digest what the Fed intends to do. This strategy prevents potentially damaging market swings that could occur if a move were unexpected.
If you are shopping for a home refinance loan, pay attention to the daily news online and see if one of the Fed presidents has given a speech or made a public statement this week. If a rate hike is coming, this could be hinted at in the speech.
Bottom Line on 2017 Mortgage Rates
The above factors generally point to rates staying low in 2017. It is true that they could increase slightly if the Fed Funds rate is raised. But other than that, you still can expect to enjoy quite low rates in 2017, if you are a first time home buyer.
However, if you are refinancing, it is important to pay close attention to what rates may do in the next few weeks or months. It is very easy for a refinance to no longer make financial sense if the rates go up by .5 of a point or .25 of a point.
Many people seeking home refinancing are doing so because they want to get a lower rate than they have now. But if rates edge up much, it may no longer be a good idea to refinance. Closing costs are not cheap, and it can become financially illogical to refinance if rates go to high.