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Tag: interest rates (Page 1 of 4)

The Temporary Rate Buydown – A Great New Option

A unique offering is now available – a temporary rate buydown – to lower your interest rate and monthly payment in years one and two of your new mortgage. 

hand of a person using a calculator near cash money on wooden table

This is a negotiated cost to be paid by the seller or builder – and your loan rate is reduced for an initial period.

This temporary rate buydown lowers your monthly payment and leaves more cash on hand each month. That difference is yours to save or put to good use around your new home.

There are no surprises…the rate buydown is adjusted each year by a set amount. It diminishes gradually until it settles at the original rate with no reduction of mortgage payment at the end of the initial period.

Buydown Example

Here’s an example of a $400,000 mortgage amount with a two-year and one-year buydown option.

Assuming an interest rate of 6%, the principal and interest payment would be $2,398.20 on a 30-year fixed mortgage…

And here’s what those payments would be with the buydown options:

As you can see, the savings are quite significant – nearly $500/month in year one and an overall savings of nearly $9,000 in years one and two!

Reach Out To Me For More

This temporary rate buydown is available on Conventional, FHA, VA, and USDA loans.  You can contact me here and I would be happy to run multiple scenarios for you, as well.

Mortgage Rates 2022 – Current vs Historical Trends

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Mortgage rates have essentially doubled since the beginning of this year. Historically, however, interest rates have often been higher — sometimes much higher — than they are today.

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The average 30-year mortgage rate over the last fifty years is just under 8%. So even though today’s mortgage rates have jumped to the 5% range, they’re still a good deal by comparison.

I’m linking to an article from Peter Miller of The Mortgage Reports that’s a must read in order to gain some good perspective on what’s happening in today’s marketplace.

2022 Mortgage Rate Chart

Mortgage interest rates fell to record lows in 2020 and 2021 during the Covid pandemic.

However, inflation has now surged to four-decade highs, causing those rates to rise quickly this year.

Historical Chart

Despite this increase, today’s 30-year mortgage rate is still quite a bit below average from a historical perspective.

Freddie Mac — the main industry source for mortgage rates — has been keeping records since 1971. Between April 1971 and August 2022, 30-year fixed-rate mortgages averaged 7.76 percent.

Here’s the average mortgage rate by year since 1974…

Mortgage Rate Outlook

As Freddie Mac explained on August 4:

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“Mortgage rates remained volatile due to the tug of war between inflationary pressures and a clear slowdown in economic growth. The high uncertainty surrounding inflation and other factors will likely cause rates to remain variable, especially as the Federal Reserve attempts to navigate the current economic environment.”

With that said, it’s not easy to predict what will happen to mortgage rates in late 2022. The Fed is likely to keep hiking interest rates in an attempt to bring inflation under control.  Couple that with a recession, however, and mortgage rates could very well move lower.

In Conclusion

Finally, it’s important for you and our clients to understand that the average mortgage is held for less than 7 years…and they are not at all married to that rate, especially if they get better!

If you or your clients are considering a purchase, your real estate search shouldn’t go on hold because of rising inflation or higher mortgage rates.  Contact me for more…as it would be my pleasure to help you.

Inflation and Real Estate – Should Buyers Wait? History Says “NO!”

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Inflation is hot…and so is real estate.  But what does the future hold for both?

a laptop with graph on screen

As we’ve talked about before, the Federal Reserve is late to the party in dealing with inflation and the latest data shows the rate of inflation is still rising.

Many are feeling the pinch in their wallets, at the gas pump, and at the grocery store.

For would-be real estate buyers that just begs the question…is now a good time to purchase a home?

I’m linking to an article from the real estate blog Keeping Current Matters, and the author does a great job in highlighting why now might be a very good time to buy.  You can access the entire article here…

Greg McBride, the Chief Financial Analyst at Bankrate, explains how inflation is affecting the housing market:

“Inflation will have a strong influence on where mortgage rates go in the months ahead…Whenever inflation finally starts to ease, so will mortgage rates — but even then, home prices are still subject to demand and very tight supply.”

While there’s no denying it’s more expensive to buy and finance a property this year than it was last year, it doesn’t mean potential buyers should pause their search. Here’s why…

History Says So – Real Estate Is A Great Hedge Against Inflation

During periods of inflation, prices generally rise across all areas of the economy.

white concrete building

Historically, however, real estate ownership is a fantastic protection against those increasing costs because buyers can “lock-in” what’s likely the household’s largest monthly fixed cost for the duration of your loan.

Not to mention, as property prices continue to appreciate, the home’s value will, as well.

That’s why Mark Cussen, Financial Writer at Investopedia, says:

“Real estate is one of the time-honored inflation hedges. It’s a tangible asset, and those tend to hold their value when inflation reigns, unlike paper assets. More specifically, as prices rise, so do property values.”

Secondly, nearly all industry experts agree that although the current rate of home appreciation can’t stay this hot, the likelihood of homes losing value is extraordinarily slim. As Selma Hepp, Deputy Chief Economist at CoreLogic, says:

“The current home price growth rate is unsustainable, and higher mortgage rates coupled with more inventory will lead to slower home price growth but unlikely declines in home prices.”

In Conclusion

Purchasing real estate is one of the best financial decisions that can be made during inflationary times. Buyers also receive the advantage of the added security of owning their property in a time when experts are forecasting prices to continue to rise.

If you are considering a purchase, your real estate search shouldn’t go on hold because of rising inflation or higher mortgage rates.  Contact me for more…as it would be my pleasure to help you.

Marry the House…But Date the Rate

brides holding white bouquet of roses

I can’t take credit for the popular phrase “Marry the house…but date the rate”. It’s being posted by mortgage professionals and real estate agents all over the place.

What does this expression mean? 

It means that if you find a home you love, don’t let current interest rates prevent you from moving forward and buying it.

Essentially, don’t be afraid to buy the house you want right now because of external market conditions!

A mortgage does not have to be long term, in fact most people refinance their homes several times as mortgage rates improve or should they need to take cash out from their equity.

Is It A Good Idea?

Committing to the house doesn’t mean you have to commit to today’s financing forever. Buyers can always look for a better financing opportunity down the road and make a change when the time is right.

signages for real property selling

It is absolutely possible to change your financing to more favorable terms later, should better rates and products become available… and if rates only get worse, then you’ll be glad you married the house when you did.

Interestingly, the average tenure of a mortgage is under 6 years…meaning most homeowner’s either move or refinance their mortgages quite often.

Better Rates Down The Road?

I do think there’s a good possibility of lower rates in the future.  More on that hereand here.

Believe it or not, we might be in for an upcoming perfect storm – and in a good way for borrowers.

It does look a recession is around the corner, which almost always results in lower mortgage rates. I know that sounds counter intuitive, but mortgage rates actually fall during recessions.

Also, one of the few areas that seem relatively immune from recession is the housing market.  Historically, one of the safest bets during recession is real estate.

The chart below shows how housing stays quite resilient during and through recessions:

Looking back at eight of the nine recessions since 1960, home prices significantly increased or at least remained stable each time during and after the recession.  One of the reasons this occurs is because interest rates significantly fall during recessionary periods.

What Buyers Should Do Now

Essentially, all of these factors listed above should combine for LOWER rates later this year into 2023.

person with keys for real estate

Of course, things can change, but it sure is looking like a recession is on the horizon, which will undoubtedly bring lower mortgage rates.

Well, waiting to purchase a home and “timing the market” is one option…but it’s almost always a bad idea.  

Why?  Because no one knows exactly when rates will hit rock bottom – and home prices will continue to accelerate.

More importantly, buyers will miss out on the gains of owning a home. Homes increased in value over 15% last year in the west…and things aren’t getting any cheaper.  More on trying to time the market here…

Purchase Strategy

I recommend making your purchase now – and NOT paying extra discount points to lower your interest rate.  As a matter of fact, you could use “negative” points to help offset any closing costs.

Instead of paying discount points to access lower mortgage rates, borrowers can receive credits from their lender and use those monies to pay for closing costs and fees associated with the home loan.

More on that strategy here…

Yes, the interest rate might be slightly higher, but you will want to refinance this mortgage when rates drop later this year or next year!  This will also limit your out-of-pocket fees for the initial transaction.

In Conclusion

Although things look a little grim currently, the future is actually looking bright for mortgage rates later this year and into next year.

Would you like to find out more?  Contact me to discuss your current situation and how you might be able to take advantage of today’s market.  It would be my pleasure to help you!

Mortgage Rate Update – March 2022

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Mortgage interest rates just keep moving higher.  They have risen nearly 1.5% points since January 3rd… and it seems like almost every day rates move up again.

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The outlook for lower rates isn’t great right now, thanks mostly to the Federal Reserve’s handling of the money supply and out-of-control inflation.

How will the Fed’s recently announced quarter point hike to the Fed Funds Rate affect mortgage interest rates?  The answer may surprise you.

The Federal Reserve

The Fed Funds Rate is not the same as a mortgage rate because it can change from one day to another, while mortgage rates can be in effect for 30 years. More on that here….

Mortgage rates are primarily driven by inflation, which erodes the buying power of the fixed return that a mortgage holder receives.  When inflation rises, lenders demand a higher interest rate to offset the more rapid erosion of their buying power.

You probably know that inflation has been rising significantly of late, and as a result, so have mortgage rates.  Inflation is pushing 9%, the highest level we’ve seen in over 40 years.  This has moved mortgage rates into the mid 4% range this week.

Essentially, The Federal Reserve has bungled their management of inflation and now have to make severe changes to offset the damage.  This brings market instability and increased mortgage rates.

When the Fed hikes rates, they are trying to slow the economy and curb inflation. If successful in cooling inflation, mortgage rates will decline.  History proves this during rate hike cycles for the past 50 years.  Unfortunately, this isn’t an overnight fix.

Federal Reserve Chairman Jerome Powell

However, the Fed may also reduce its holdings of Mortgage Bonds, which can cause some interest rate volatility.  And if inflation continue to surge, the Fed might not be able to do much to help.  The situation isn’t great at this moment.

30-year fixed mortgage rates

The average 30-year fixed-refinance rate is 4.53 percent, up 20 basis points over the last week. A month ago, the average rate on a 30-year fixed refinance was lower, at 4.17 percent.

At the current average rate, you’ll pay $503.13 per month in principal and interest for every $100,000 you borrow. That’s $7.08 higher compared with last week.

Mortgage Rates and Treasury Yields – a great barometer

Fixed mortgage rates and Treasury yields tend to move together because fixed-income investors compare the returns they can get on government and mortgage-backed securities. 

Investors compare yields on long-term Treasuries to mortgage-backed securities and corporate bonds. All bond yields (including mortgage backed securities) are affected by Treasury yields, because they compete for the same type of investor.

Mortgages, in turn, offer a higher return for more risk. Investors purchase securities backed by the value of the home loans—so-called mortgage-backed securities. When Treasury yields rise, investors in mortgage-backed securities demand higher rates. They want compensation for the greater risk. 

You can dig deeper by reading Kimberly Amadeo’s article here…

You can see the rise in the 10-year treasury yield here…and mortgage rates have been following a nearly identical course over the last 3 months.

What Really Causes Rates to Rise and Fall?

Mortgage rates are determined by a complex interaction of economic factors, such as the level and direction of the bond market, including 10-year Treasury yields; the Federal Reserve’s current monetary policy, especially as it relates to funding government-backed mortgages; and competition between lenders and across loan types.

Because fluctuations can be caused by any number of these at once, it’s generally difficult to attribute the change to any one factor.  Although in our current situation, inflation (and the Fed’s mismanagement of it) is the number one cause.  When this is coupled with the large increase in government spending, you see a double dose of fear in the markets.

roll of american dollar banknotes tightened with band

In today’s case, the Federal Reserve has been buying billions of dollars of bonds in response to the pandemic’s economic pressures, and continues to do so. This bond-buying policy (and not the more publicized federal funds rate) is a major influencer on mortgage rates.

On March 16, the Fed announced that it expects to begin reducing its balance sheet in May, meaning it will start reducing the overall amount of bonds it owns. This will be on top of its existing move to reduce new bond purchases by an increment every month, the so-called taper, which began in November.

You can find out more here from Investopedia….

Most experts agree that this “taper” will also move treasury yields and mortgage rates higher.

Moving Forward

There may come a point when mortgage rates drop back down and borrowers can enjoy some of the remarkably low rates they were available from mid-2020 through late 2021.

And throughout 2022, we could have periods when rates dip to some degree.

But for the most part, borrowers may need to come to terms with the fact that the days of record-low borrowing are behind us.

With that said, it’s important to put today’s rates into perspective. Compared to the rates we saw from mid-2020 through the end of 2021, the rates above look high. But historically speaking, locking in a 30-year mortgage anywhere in the 4% range is not a bad deal at all.

Would you like to find out more?  Contact me to discuss your current situation and how you might be able to take advantage of today’s market.  It would be my pleasure to help you!

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