Attention all homeowners reading this blog post!
If you have a mortgage lock-in expiring within this year, or you know of a loved one with that, you’ve got to listen up and take some bold steps.
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Starting this week, right up to the U.S. Fed FOMC meeting scheduled on 15-16 March, we will be making repeated appeals to the market for those who would heed our call. As thought leader in the mortgage space, it’s our duty to issue this call early, so more people can benefit. This is reminiscent of the early days in the pandemic (2020) when Fed sent interest rates crashing to zero in one fell swoop and spreads on SIBOR floating rate home loans shot up from 0.20 to 0.60 within three months from April to June. We made repeated calls back then for homeowners to take action and those who did benefit from paying a ridiculous 0.50-0.60% mortgage rate in the subsequent two years that follow.
In fact, we have already prompted many of our clients since end of 2021 and moved them over to fixed rates as low as 0.95% to 1.10% (3-year fixed) earlier – for all those with lock-ins expiring in the first half of 2022. This follows the notable change we detected in Fed Chair’s stance since November 2021, after his re-appointment for a second term. Such is the benefit of working with a trusted broker over the long term which ultimately saves you much more than any gift card or voucher. And check out the accuracy of our interest rate forecasts since 2014.
The reverse is about to happen soon, in a similar fashion to 2020. Homeowners are about to be shell-shocked by Fed’s action next month. St. Louis Fed President Jim Bullard (voting member in 2022) said it best in his latest CNBC interview – “Fed should “front-load” the tightening of the monetary policy” to fight inflation. Financial markets have priced in higher odds of a 0.50% rate hike at one go next month. We think that decision (whether 0.25% or 0.50%) hinges on the all-important inflation number for February which will be released just days before the FOMC on 10 March. Given the laggard nature of some inflation readings, we will not be surprised with a number that continues to head north of 7.50% from January’s high. Most agree that inflation will only level off in the second half of the year when supply chain constraints ease off.
Never before has the Fed move beyond 25 basis points (0.25%) in each past hike since after the financial crisis of 2008. Many, including mortgage brokers and bankers, have yet to fully grasp the extent of what’s about to happen. The joke is that we are still hearing some banks telling clients when they called for repricing quotes that – they should do nothing as their current floating rates remain the lowest and are “still good”.
When Fed hike rates by 0.25% in normal tightening, you’ll find compounded 3-month SORA (refer to our chart on interest rate cycle), as well as fixed rates, moving up by approximately a smaller margin of 0.15-0.20% over the span of 2-3 months. This means you will see the 2-year fixed rate mortgage moving up from the current 1.30-1.40% range to 1.40-1.60% by April & May. However, if Fed front-loads the rate hikes, then you will quickly see 2-year fixed rates escalating to 1.60-1.80% by July 2022! And 3-year fixed rates will be even higher going past 2%.
Never before has the Fed move beyond 25 basis points (0.25%) in each past hike since after the financial crisis of 2008. Many, including mortgage brokers and bankers, have yet to fully grasp the extent of what’s about to happen.
Compare All Latest Rates 2022
Homeowners still on floating rate home loans of 0.60-0.80% today might see their peg of 3-month SIBOR rising swiftly to 1% mark, and suddenly find themselves servicing mortgage interests at 1.30-1.50% just past the mid-year point. That might still be fine if Fed pauses after three hikes (when it reaches a full 1.00% in fed funds rate), as that’s the same level as prevailing fixed rates if you refinance right now. Any higher, for example if Fed continues to a total of 7 hikes this year like what one Goldman Sachs’ analyst is forecasting, there will surely be great remorse for not locking down fixed rates earlier.
If you are out of mortgage lock-in within this year, speak to our experienced team of consultants here quickly. We’ll show you the data, help you make a quick decision to hedge your risk, and be ready to ride out this next interest up cycle by partnering with us.
Mark our word here – March will be the most crucial period for any homeowner seeking to refinance and lock down fixed rate home loans below 1.50%, before it’s too late.
Homeowners still on floating rate home loans of 0.60-0.80% today might see their peg of 3-month SIBOR rising swiftly to 1% mark, and suddenly find themselves servicing mortgage interests at 1.30-1.50% just past the mid-year point.
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