For the last eight years, the Federal Reserve bank has kept interest rates at rock bottom lows. We’re still waiting to break through 1 percent. As a result, all borrowing, including mortgages is cheap. But could that soon change thanks to Trump?
Donald Trump does not hold conventional, mainstream views about the economy. Whereas most economists have been arguing for interest rates to remain flat in order to stimulate the economy, Trump has repeatedly called for interest rates to be allowed to rise to reward savers. The problem, of course, is that so many people are up to their ears in mortgage borrowing costs. With house prices so high, the majority of families are struggling to keep up with their repayments even with low-interest rates. Should interest rates rise again, we could see another wave of foreclosures similar to what happened in 2008.
Should Moms Choose A Fixed Rate Mortgage?
Is the solution a fixed rate mortgage? Data from Emetropolitan shows that right now, the interest rate on fixed rate mortgages is just about the same as the adjustable rate mortgages. In other words, there’s no interest penalty for people with short term mortgages from switching from adjustable rates to fixed. If you’ve got a longer term mortgage, you’ll have to pay slightly more for the benefits of a fixed rate, but again, the difference is slight.
The extent to which Trump can manipulate the mortgage market directly is limited. Aside from not launching any new federal housing programs, his best bet is to do it through the wider economy. If demand picks up overall, then the Federal Reserve will have to raise interest rates to prevent inflation. And if interest rates rise, then so too will the rates on mortgages, making owning a home more expensive.
The key to deciding whether you want a fixed or adjustable rate mortgage over the next five years comes down to what you think Trump is going to do for the economy. If you think that increases in demand will lead to higher overall economic activity, then there’s a risk that interest rates will rise and the amount of money you spend on your mortgage will increase. But if you think that lowering taxes – which is something Trump plans on doing – will decrease demand, then you’re still safe with an adjustable rate.
The Dilemma For Moms
The problem for moms is not knowing which of these two outcomes is more likely. But given the promises that Trump has made about the economy and the OECD forecast that under Trump, the economy will grow 53 percent faster, it seems prudent to choose a mortgage rate that won’t go through the roof. After all, interest rates have a long way to rise from rock bottom.
Today’s Competitive Rates
It would also be a bad idea to miss out on today’s historically low-interest rates. There simply hasn’t been another time in history when interest rates remained this low for this long. For that reason, and that reason alone, moms probably need to consider switching from adjustable to fixed.
*Disclosure: This post was submitted on behalf of PennyMindingMom.com.