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Doubts Over Tax Bill Help Retain Mortgage Rate Improvements

Dec 15, 2017

In most cases, US mortgage rates managed to hold on to Wednesday’s gains throughout the course of the day yesterday. A few lenders did issue lower rate sheets, but they did not drop the actual rate being charged; only the upfront costs were slightly reduced. In most cases, the mortgage rate being quoted remained unchanged from Wednesday.


When one considers the fact that effective rates dropped to some of their lowest levels so far in December on Wednesday afternoon, the current offerings are quite reasonable. “Effective rates” mean either higher lending credit or lower upfront costs for the generally prevailing rate of 4.0% on a conventional 30-year fixed-rate home loan.


The bond markets that underpin all rate movements appeared to be less affected than usual by economic statistics; instead, they were more focused on what was happening on the economic policy front.


In this case, it was the headlines that a couple of Republican senators might not approve the tax cut bill unless a number of changes are implemented that seemed to have the biggest effect. This news caused bond yields and stock prices to move lower during after-lunch trading. Lower yields on bonds normally translate to lower mortgage rates.


This was the reason that a number of lenders issued improved rate sheets before the close of trading yesterday afternoon.


US mortgage expert Ted Rood pointed out that bond markets recovered some of their earlier losses by lunchtime yesterday, with news on the proposed tax reforms continuing to dominate the headlines. He added that he believed that some version of the bill will eventually be approved, and he expressed the hope that markets have already had enough time to factor in any possible inflationary pressure resulting from such a move.


He concluded: “I still don't see a massive upside to floating here, feels like a bet on unlikely propositions (tax reform failure/massive international discord/sudden DC drama). I'm locking loans within 30 days of closing.”


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