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The relationship between presidential elections and mortgage rates can be interesting and difficult to pin down. Presidents and the U.S. government don’t set mortgage rates, but elections can affect the economy overall. In this way, they usually have an indirect pull on mortgage rates.
During the 2020 election year, there was a large factor at play that could make the otherwise inconsistent relationship between elections and rates a bit more predictable: the COVID-19 pandemic.
Let’s dig into how mortgage rates are determined, how elections tend to affect mortgage rates, and if the 2020 election seemed to impact the rates we are seeing today.
How are mortgage rates determined?
Mortgage rates are affected by many economical factors — and some individual factors — but they largely are influenced by the price movements from mortgage-backed securities (MBS), which are a type of asset-backed security similar to a bond. They are made up of a bundle of home loans that are bought by the banks that issued them.
Where do the bundles come from? Well, mortgages are only owned by lenders for a brief period before they’re bundled up with a pile of other mortgages and sold to investors in a secondary market. This ensures the lender can continue lending money to future borrowers.
During the COVID-19 pandemic, the Federal Reserve bought more than $1 trillion of MBS to help the market and investor confidence. So this is where the economy in general is the force behind these decisions: When the economy is booming, mortgage rates are high, and when it is struggling, rates are low.
What individual factors will affect my rates?
While mortgage rates in general are largely out of your control, you can score a great rate based on the current range if you are in solid financial standing. A mortgage lender generally will determine your rate based on three factors:
- Credit score and report
- Debt-to-income ratio (DTI)*
- Loan-to-value ratio (LTV), or down payment
You will get a better rate if your credit score and down payment are higher, and your DTI is lower. If you’re waiting to see how rates play out over the next few months, you could reach out to a home.com by Homefinity loan officer to get honest recommendations and advice to get you the best rate possible.
Working on your credit score and debt now will always be helpful in the long run, whether you want to move to a new home or refinance.
Understanding your own unique financial situation involves diving into your income and debts, which is what any home loan officer will need to see proof of when you’re ready to purchase a new home or refinance your current mortgage.
*Debt-To-Income (DTI) ratio is monthly debt/expenses divided by gross monthly income.
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In the past, how have elections affected mortgage rates?
In determining how 2020’s election might have affected current mortgage rates, experts dug into the past to compare. Many immediately looked to the 2000 Bush vs. Gore election, because it had some similarities to 2020’s election year.
- In November 2000, the 30-year fixed-rate mortgage hovered in a range of 7.73%-7.79%. Then in December, it made an unusual descent, averaging 7.13% by the end of the month.
- In 2004, a re-election year, rates increased.
- In 2008, during the financial crisis, mortgage rates decreased dramatically — almost one percentage point — from an average of 6.46% to 5.53%.
- Another slight drop occurred in 2012, which was a re-election year for Barack Obama.
Then, in 2016, mortgage rates climbed. The numbers show us that, historically, mortgage rates typically move in some way right after a new president is elected. However, they’re not always predicted accurately, and they’re not always a large enough difference to be noteworthy.
Does it matter which party gets elected?
Experts agree that while elections may appear to drive a spike or fall in mortgage rates, the direction they go can be unpredictable. While data shows that a rise occurred more often after a Republican was elected and fell more often after a Democrat was elected, the difference can be so slight that it’s not a certainty.
This actually can be a good thing, because if elections could produce predictable mortgage rate results, that could affect election results. As of now, the marketplace still rules when it comes to elections and mortgage rates.
Did the 2020 election affect mortgage rates?
There’s not a clear answer as to whether the 2020 election results affected mortgage rates. On one hand, rates have increased since Joe Biden was elected president, but there also were several other pieces moving at the same time. The job market had improved, and there was renewed hope due to the distributions of the new COVID-19 vaccine.
Overall, it appears that no matter who is elected, the economic factors still largely outweigh political lines. Since COVID-19 greatly impacted the world in 2020 and created a recession, the mortgage rates today appear to be more heavily reflecting the news surrounding the pandemic rather than who was elected.
Unlock the best rate for you with professional support
With Homefinity, you work with your own dedicated professional to get a loan that’s right for you. No matter the current mortgage rates, we can provide support and advice to ensure you get the best rate you can with your unique needs.Request a quote today or send us a question so we can get started right away. We look forward to helping you get into your new home or refinance.