In recent years, interest rates have remained low and the volatility levels of rates continue to stay low. It has been great for home buyers and those looking to refinance to lower interest rates. However, changes within the Federal Reserve are on the horizon and we may start to see some increased volatility in the rates that directly affect the mortgage industry.
The Volatility Index
The Chicago Board Options Exchange (CBEO) constantly maintains the Volatility Index (VIX), which measures the stock market’s implied volatility. Some even call it “Wall Street’s fear gauge.” The VIX is currently at its lowest rate since 1993. This impacts the swap rates, which are used in part to lock in fixed interest rate for loans.
The reason for likely increase volatility is that we don’t know who will be running the Federal Reserve next year once Janet Yellen’s term as chairperson ends. The Fed maintains a transparent policy. Though we certainly value full transparency here at Transparent Mortgage, transparency of all activities within the Federal Reserve, speculation who may take over as chairperson and President Trump’s proposed financial policy changes will lead to some volatility—at least in the short term.
Unpredictability Leads to Instability
Essentially, things are harder to predict at this very moment. This is in contrast to recent years when Fed policies and activities have been largely predicable. Such unpredictability could mean some fluctuation in mortgage interest rates for consumers.
Ultimately, the hope is that once the dust has settled and a new Fed chairperson is in place along with other board member seats that still need to be filled, the potential for volatility will be reduced and we’ll be back to low levels of rate fluctuation sometime next year.
How It Impacts Homeowners
What does this all mean for you as a consumer looking to buy a home or refinance your mortgage? It means now is still a good time to make your move and take advantage of great interest rates while they are stable. If we do start to see more volatility in the coming months, it’s hard to know how interest rates will be affected. In the mortgage industry, we always prefer predictability and certainty over unpredictability and uncertainty.
There are 2 big factors that are expected to drive the direction of interest rates here in the coming months and possibly into 2018.
1: INFLATION – If inflation finally starts to move up, rates will go right up with them.
2: FISCAL POLICY. If the Federal Gov passes tax cuts, it is expected to drive rates up immediately in anticipation that the tax cuts will drive economic growth.
To learn more about current interest rates and to discuss your mortgage loan or refinancing options, contact me and my team at Transparent Mortgage. Call us at (619) 929-0199.