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Nov 3, 2017

How the Fed Chair Nomination Affects Mortgages in 2018

Good news, mortgage seekers.

President Trump’s nomination for the next Chair of the Federal Reserve will make it easier for anyone interested in a home loan to “predict the Federal Reserve’s actions,” according to Realtor.com chief economist Danielle Hale. President Trump’s choice, current Federal Reserve Governor Jerome Powell, will also bring greater transparency to your decision between a fixed or adjustable rate mortgage

Continued, Yet Cautious Rate Hikes 

This year’s Halloween didn’t scare away any mortgage seekers. Mortgage News Daily Chief Operating Officer Matt Graham correctly predicted that the Fed would not raise its key interest rate November 1st. Yet, wrote Graham, “Of greater importance (and of more interest to investors) is Trump's pick to replace Janet Yellen as the Chair of the Federal Reserve.” 

Three days prior to the November 2nd nomination, Reuters reporter Steve Holland revealed that President Trump placing Powell at the head of the Federal Reserve would bring relief to Americans looking for a home loan. The move provides “the combination of a leadership change and the continuity offered by somebody who has been a part of the Yellen-run Fed that has kept the economy and markets steady in recent years.” The incoming Powell agrees with outgoing Fed Chair Janet Yellen “that weak inflation justified a continued cautious approach to raising interest rates,” wrote Holland. 

How Federal Reserve Rates Affect Your Mortgage Choice 

The stellar news that the Federal Reserve will make life more predictable for somebody who wants a home loan is sweetened by the upcoming outmoding of the scandal-plagued London Interbank Offered Rate (LIBOR). Manipulation of the LIBOR was responsible for many homeowners suffering foreclosure during the Great Recession. Later investigations revealed the need for the US and other countries to replace the LIBOR as early as 2019.

With the Federal Reserve’s prime rate taking on greater importance in determining mortgage rates, and Powell continuing forward with a slowly rising prime rate, an adjustable rate mortgage (ARM) loan may or may not be your best bet. While ARMs are a fantastic choice for those who predict rates will decrease in the future, a fixed rate mortgage loan may be a great bet for somebody who sees slow, but steady Federal Reserve rate hikes under Powell.

It’s important to consider both that the Fed’s prime rate is likely to increase in the short term, and that mortgage rates are soon going to increasingly rely on domestic indexes. 

Home Loans in the Near Future 

No loan officer can say for sure what the future holds. However, the informed home loan applicant will consider changes in both global and domestic economics. 

The big picture? The LIBOR-related fraud that caused the Great Recession, and more than 10 million foreclosures, is unlikely to occur again in the near future. Financial regulation, domestic indexes, and a cautious Federal Reserve Chairman will make home loans more transparent. At the same time, anyone looking for a home loan would do well to meet with a local loan officer to get insight into the type of loan they want. 

The Federal Reserve’s prime rates are due to increase, but slowly. That means next year may be a fantastic time to lock in a fixed rate mortgage. The flip side to that argument is that the index rate may be in decline by the time an adjustable rate mortgage begins to adjust. 

While you actively search for a home loan, it’s best to stay aware of the Fed’s moves and keep in touch with your loan officer. Whether you choose a fixed rate mortgage or adjustable rate mortgage, consider the time spent studying mortgages an investment into your future financial success. If you study key economic indicators and heed the advice of industry insiders, you’ll notice conditions and trends that will help you pick the perfect home loan.

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