Mortgage Rates in The Age of Geopolitical Uncertainty

It is all but set in stone that the Fed will raise their short-term rate in March. During testimony on Wednesday March 2, 2022 Fed Chairman Jerome Powell said he still sees interest rate hikes up ahead as “implications for the U.S. economy are highly uncertain” from the Ukraine war. While there is nothing convenient about a geopolitical conflict like the one we are living through, it does add a new and heavy layer of consideration to the Fed’s decision. Newly adjusted labor statistics reflect a tight employment market with still millions of jobs going unfilled while unemployment falls to it’s lowest lows of the last 2 years.

The events unfolding now are proving to be more critical than anyone could have anticipated as we have a lot of variables all putting pressure on the financial markets – which all impact mortgage rates. Coming into the month of March we were expecting the Federal Reserve to make a short term interest rate decision between 0.25% increase and 0.50% increase, and at the same time start their tapering process by reducing the amount of treasuries and mortgage backed securities they have been purchasing every month period. Both of these moves were anticipated and current market rate pricing has reflected this over the last 60 days.

Now that we have unrest between Russia and Ukraine, a wrench has been thrown in the gears and the expectations of the financial markets. Due to financial sanctions that are coming from all angles towards Russia, even the safe havens for financial markets have endured massive volatility in the last few weeks. Just this week alone the mortgage-backed security market saw 0.50% better pricing on Monday, but a full reversal during the trading day on Tuesday, negating any positive direction that could have been gained by consumers. Just these 2 most recent trading sessions verify that market movement is 100% subject to speculation and the changing dynamics of the geopolitical uncertainties. This is the challenge we face in the mortgage industry for purchase rates and refinance rates.

The best way to position yourself in this current market environment is to plan ahead. If you are unsure about when the right time to conduct your cash out refinance will be, it is better that you start the process now so that you have completed every step up to the point of locking and funding your loan so that you can take advantage of any inter day rate price for the better. Simply stated, get the trench work done now so that on a good day in the market you can lock the lowest rate possible. Your local loan expert will help you begin this process online or in person so you can put yourself and your family in the right position during your residential refinance.

If you are looking to buy a home the same rule of thumb applies. Do everything you can in advance to get your loan approval completed so you can shop for your new home with confidence. Our recommendation is to become approved for the highest loan amount possible, according to a rate range of a 0.25% lower and higher than today’s current rate. This will optimize your ability to safely shop for a home even though the rate market is wildly adjusting in these geopolitically uncertain times. Additionally, a lot of homes on the market are listed with a price range. By giving yourself a monthly expense range and mortgage interest rate range, you are able to more comfortably make offers to sellers that are entertaining various sales prices.

Since we have no crystal ball it is extremely difficult to try and predict exactly which direction mortgage rates will eventually go. However, what we can say is at this time we should expect volatility to continue until the unpredictable elements in the geopolitical environment come to a rest. Also, the financial markets need to return their focus onto the core fundamental purpose – for price to increase or decrease based on the data we have in employment, financial strength, inflation, and modern monetary policy guided by the Federal Reserve.  We will continue to monitor and report on this story so that we are in lock step as closely as possible with the changing market dynamics.

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Rates & Fees Disclosure:
^‡ The payment on a $300,000 30-year fixed-rate VA loan at 3.000% with a 80% loan-to-value ratio is $1,292.01 with 0 (zero) origination points due at closing. The annual percentage rate (APR) is 3.235%. Payment does not include tax and insurance premium impounds. The actual payment amount will be greater. By refinancing your existing loan, the total finance charges may be higher over the life of the loan. Some state and county maximum loan amount restrictions may apply. Appraisal fee of $600, Processing Fee of $895, Underwriting Fee of $795 included in APR calculations with borrower paying 0 (zero) loan origination points.

^‡ Based on Mortgage Heroes internal data.