Orion, our brokers, and your clients are all, either directly or indirectly, impacted by election results. The U.S. election this week will steer some attention away from investors locked in on the Federal Reserve. The consensus expectation is that a divided government between the White House and Congress will lead to more political grid lock and a potential slow down for some of President Biden's agenda. Meanwhile, lenders and their clients continue to watch mortgage rates, and the economics calendar will be dominated by the October consumer price index report.

Mortgage rates have increased dramatically, with the average 30-year fixed rate increasing from around 3 percent at the start of 2022 to around 7 percent, or higher, now. This is down to the Fed's policy of increasing interest rates in abid to slow the economy and, most importantly, slow the rate of record high inflation. Your clients are facing potential monthly mortgage repayments hundreds of dollars higher than earlier in 2022, which is likely to mean purchase time lines are pushed back.

The rate of the average mortgage has headed higher in 2022, which is making it even harder for first time buyers to get on the property ladder. A few percentage points may not sound like a lot, but they really add up when you’re talking about a mortgage of a few hundred thousand dollars. For example, Orion’s brokers know that on a mortgage of $300,000 the increase from 3% to 7% would mean the average monthly payment has increased from $1,265 up to $1,996. That’s an extra $731 per month, on top of the already rocketing prices of everything else.

But how does the Fed increasing interest rates impact what a homeowner pays for a mortgage? The same economic news that drives the Federal Reserve to make changes to interest rates also move mortgage rates. Essentially any type of loan is based on the base rate set by the Fed. It’s called the base rate because it’s the rate on which all other interest rates are ‘based’. Inpractical terms, the Fed's rate is what the banks themselves pay in interestfor short term borrowing.

Short term borrowing is a fundamental part of the financial system, with money flowing around so fast that it can’t all be accounted for and transferred instantly. Because of that, the more interest that they themselves pay, the higher interest they need to charge to their customers to maintain their profit margins. If the Fed raises rates, banks pay more interest and they therefore need to increase the interest they charge to their customers. These interest rates can flow through to mortgages. The general rise in interest rates has certainly spilled over into mortgage rates.

Through all of this, Orion offers some very solid programs and pricing that aren’t related to 30-year mortgage rates. Ask your AE!

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