Why do reindeers go to school? According to my seven-year-old daughter, it’s so they can learn the elf-abet.

Even if you don’t continue reading the rest of this column because you’re rushing out to a store to pick up a last- minute holiday gift, hopefully you just smiled before you moved on. During this time of the year, it’s healthy to laugh and smile as stress levels are generally off the snow-charts.

Yes, this reindeer joke is rather confusing. However, that’s one of the reasons why I thought it would be a great way to introduce three recent changes in the lending world and how they will impact you in 2016.

As you probably know, the Federal Open Market Committee (FOMC) met this month and increased the Federal Funds Rate by one quarter of a percent. When this rate goes higher, usually your credit cards, unsecured bank lines of credit or some installment loans as well HELOCs bump higher too.

Since the FOMC typically meets eight times during the calendar year, the speculation machine is already hard at work trying to predict when the next rate increase will take place and by how much.

The good news is that the government does not directly control mortgage rates. In fact, the relationship between the Federal Funds Rate and the standard 30-year fixed mortgage is weak, sort of like reindeers to elves.

One of the reasons is that home loan rates are instead more aligned with the investment activity of mortgage-backed securities. Fortunately, investors here in the U.S. and around the world are likely to keep putting their funds into our bond market, which should result in continued low mortgage rates well into 2016.

While there will definitely be volatility, meaning rates will go up and down during the year, for the most part the major economist and banking expert predictions are ranging somewhere between 4.2 percent to 5.1 percent for a 30-year fixed mortgage by the end of 2016.

Whereas the predictions for the Federal Funds Rate are coming in around 1.25 percent by the end of next year indicating that several of those eight FOMC meetings in 2016 are going to yield rate hikes.

Lastly, the government elves have been hard at work in raising the Fannie Mae, Freddie Mac and FHA loan limits across certain counties around the country. Starting in 2016, you can go all the way up to $625,500 in Napa County.

You are also now able to better structure your residential real estate financing by only having to put 5 percent down-payment to purchase a home at these higher loan limit ranges instead of the previous minimum amount of 10 percent down with Fannie and Freddie. The FHA remains at 3.5 percent down.

Together, with the lower down payment option and the higher loan amount limit adjustment, things are looking up in 2016. But be careful how you take advantage of these changes, and work with your mortgage professional to understand the best way to configure your application. Happy holidays to you and your family!

Chris Salese can be reached at chris@delsurmortgage.com or (707) 363-4439. He is a licensed California mortgage banker (NMLS 254469/1850 CA BRE 01377933/01215943) and equal housing lender.


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