Guest blog by: Bill Baker, Mortgage Loan Originator, Marine Bank/CIBM

What Will Rates Do?

Rates are a daily topic in my little corner of the residential lending world. They go up, they go down, or
they stay about the same. Every day. For 2018, rates have pretty much just headed north, with the average 30-year fixed rate moving from 3.95% last December to 4.83% for October 2018. Additionally, the Federal Open Market Committee (FOMC) has increased a thing called the “Fed Funds Rate” by 1.50% over the 2017-2018 period. This rate dictates the “Prime rate” and affects many products such as home equity loans and credit cards. Rates are rising, and you know what? There’s not a darn thing I can do about it. Admittedly, it took me a few years to learn NOT to worry about what I cannot control. I no longer worry about rates or where they’re headed. This helps me better serve my clients and I sleep better at night!

You see, rates are relative. History reminds us. At the risk of sounding like the old codger who walked uphill to and from school, in the snow, every day (and liked it), I cannot forget my Economics Professor boldly proclaiming, “Pay attention to this moment, folks, because what we are witnessing with regard to interest rates is unprecedented, and likely will never happen again!”. It was December 1980 and the Fed had just raised rates such that the Prime rate was 21.50%! Imagine if rates were at those levels now and what effect that would have on lending and the overall economy! It’s a scary thought. But in the 1980’s, people kept buying houses, oft times using a newfangled product called the “Adjustable Rate Mortgage”, just to get down to the 10 to 14% range! The 30-year rate averaged more than 16% for 1981 and 1982, and with over 2 points of fees! The world kept turning and people kept financing houses. For a more recent perspective, 2000 was the latest year the average 30-year rate exceeded 8%. We have sure enjoyed a long period of cheap mortgage money!

Yet, rates are historically low! In my view, the best interest rate on a given day is the rate that works for the situation at hand. For the home buyer, it is a rate and resulting payment at which they can enjoy home ownership without becoming “house poor”. For property investors, it is the rate that helps them attain the desired cash flow and ROI. It is far more important to analyze each client’s overall situation and select the product, rate and cost structure that accomplishes their objectives.

So where are rates headed? Here’s the answer. They’re either going up, going down, or staying about the same. Every day. And I’ll be continuing to enjoy helping clients get the lowest rate/cost structure the market will allow for their specific situation. Best of all, I’m not worried.

Happy Holidays to you and yours!

Bill Baker, Mortgage Loan Originator, Marine Bank/CIBM