Do Trump’s policies matter to your housing loan?

To understand the mechanics of these seemingly unrelated events, start with linkages in global interest rates.
Given this year’s inflationary policies from the White House and interest-rate increases by the US Federal Reserve, capital outflows will likely make both US and Thai government yield curves steeper. 
Higher yields will lead to higher borrowing costs for corporations and banks. 
Since the Bank of Thailand will likely keep the policy rate at 1.50 per cent until the end of this year, as private investment remains tepid, the higher market rate will put more pressure not only on the central bank’s Monetary Policy Committee (MPC) to raise the policy rate next year, but also on the major cost of funds – deposit rates – for banks.
In 2018, the higher cost of funds will translate into higher loan interest rates across the board. 
The minimum lending rate (MLR) and minimum retail rate for the four largest banks could go up 0.30 percentage point to 6.72 per cent and 7.96 per cent if the MPC decides to raise the policy rate by 0.50 percentage point, according to TMB Analytics’ analysis.
If you have a mortgage, you will be affected by this increase in interest rates next year.
If you are paying down the loan every month and your interest rate is floating, such as at MLR minus 2 percentage points, for the next year, your interest expense will increase. 
Your monthly instalments will go to interest instead of principal. It will eventually mean a longer time to pay off your housing debt. 
Similarly, if you are a new homebuyer, for next year, banks will offer higher interest rates than currently because of their increased borrowing costs.
Given the increasing-interest-rate environment, in principle, locking in borrowing costs is suggested. This can be applied to both current borrowers and new homebuyers.
For instance, locking in interest by selecting a fixed-rate scheme such as 3.75 per cent for the first three years would be a reasonable strategy for new homebuyers because the interest rate is likely to reach bottom and start to climb again in 2018.
For current borrowers, refinancing your loan at the bank offering the lowest fixed interest rates is a sound strategy. 
By taking all costs such as prepayment fees for refinancing before three years and taxes into account, the new fixed rate plus transaction costs should be lower than the current rate.
The next question is when you should apply the fixed-interest-rate strategy. The answer is as soon as possible, since interest rates will increase from higher borrowing costs. 
As mentioned, banks’ cost of funds is likely to increase soon from steeper bond yields, especially for longer tenors. This will affect the interest rates – pricing – that banks will transfer to home loans, which have longer tenors.
Now the home-loan market is becoming more competitive, since several banks have started to grow their mortgage portfolios aggressively. Higher competition results in lower prices. 
Besides traditional promotions such as fee waivers, interest-rate competition among banks might occur temporarily.
Given the bottoming out of the interest-rate cycle and the home-loan competition among banks, this year would be a great opportunity for homebuyers and refinancers alike to secure the lowest interest rates in the past decade before they start to go up.

Views expressed in this article are those of the author and not necessarily of TMB Bank or its executives. Panawat Innurak, an assistant vice president at TMB Analytics, can be reached at [email protected].