Election Day: How Much Mortgage Rates Could Change After Tuesday

Mortgage Rates Waiting On Election Results

Current mortgage rates are on edge, waiting for results of the long-awaited 2016 presidential election.

Rates have been surprisingly flat over the past week, despite significant financial releases.

But that could change very soon.

In less than 24 hours, the next U.S. President will be announced.

As with all market-moving news, surprises could upend mortgage rates, leaving consumers with opportunity or regret.

Following are two possible scenarios based on today’s election results.

How Do Major Developments Move The Mortgage Rate Market?

Mortgage rates, contrary to belief, are not controlled by the government.

Rather, they are based on an asset called mortgage-backed securities, or MBS, which are traded just like stocks on the open market.

And just like stocks, MBS values rise and fall based on speculation.

For example, Company A is expected to report stellar earnings. Its stock rises, even before financials are released. Investors predict Company B’s profits will drop. Its stock falls before official reports are available.

The same behavior plays out in the MBS market.

When investors perceive uncertainty, they invest in MBS. That drives down mortgage rates.

When the future is predictable, investors put their money in riskier investments with higher returns. They pull money out of MBS, and mortgage rates go up.

Big shifts in the mortgage rate market come when the unexpected happens. Investors must adjust expectations at break-neck speed.

That could equal opportunity for today’s mortgage shopper.

Scenario 1: A Win For The Democratic Nominee

Wall Street has already “baked in” a win for the Democratic nominee.

If that happens, don’t expect big movement in mortgage rates.

If anything, mortgage rates may move higher.

Remember: investors like predictability, and this candidate is viewed as the status quo. The new administration would likely not impose big policy shifts compared to those already in force.

And in times of relative certainty, investors are more bold. They will move away from safer investments — like MBS — to make bigger returns elsewhere.

As a mortgage shopper, if you believe the Democratic nominee is a sure bet, you may do well to lock in your mortgage rate today, before final results are in.

Scenario 2: Republican Nominee Pulls Ahead

As a mortgage rate shopper, you might do very well in this scenario.

As mentioned, Wall Street expects a Democratic win. If that doesn’t happen, expect mortgage rate market shifts not seen since this summer.

At the end of June, Britain voted — quite unexpectedly — to leave the European Union. That sent shock waves through markets, introduced uncertainty, and sent mortgage rates in an overnight downward spiral to their lowest levels in three years.

Rates bottomed out near all-time lows.

There is a similar scenario warming up right now. The Republican nominee for president is perceived as a marked shift away from the status quo. Investors would not know how to plan for the administration.

And, remember, any time investors are unsure, they flock to safe assets, like MBS.

When MBS are in demand, mortgage rates drop.

The drop could be precipitous. Investors would pile into mortgage-backed securities like few times in history. This would put fierce downward pressure on mortgage rates, and spell opportunity for today’s mortgage shopper.

Lock Now, Or Wait?

The decision to lock now could be a wise one.

Playing it safe, you would lock now, knowing that rates may rise after Tuesday. Rates are still low, and it’s difficult to get a “bad deal” in today’s market.

But if you are not yet “in the money” to refinance because rates are a touch too high, you might wait and see how the election plays out.

If election results start to turn in an unexpected direction, you may do well to lock later this week.

Like an investor, you should try your best to predict the future, and make your best decision.

What Are Today’s Mortage Rates?

Mortgage rates are low, and there have been few better times in history in which to lock.

Get a mortgage rate quote now, which comes with no obligation to continue, should you decide to wait for results of election day.