- Top 5 Reasons Why Mortgage Rates Go Up and Down – A & N Mortgage
- Effect of inflation on mortgage rates
- Effect of the strength of the economy
- Current scenario of the housing market
- The Federal Reserve
- The bond market
- How to get the best mortgage rate
- 1. Get a fixed rate or ARM?
- 2. Should I pay points?
- 3. What are the closing costs?
- 4. Any first-time home buyer programs?
- 5. Down payment size?
- 6. How do I compare?
- 10 Ways to Lower Your Mortgage Rate
- 1. Maintain a good credit score
- 2. Have a long and consistent work history
- 3. Shop around for the best rate
- 5. Put more money down
- 6. Shorten your loan
- 8. Pay for points
- 9. Set up automatic mortgage payments
- 10. Refinance
- 4 Ways to Lower Your Mortgage Interest Payment | First Bank Mortgage
- 1. Ready, Set, Refinance
- 2. Lengthen Your Loan
- 3. Say Goodbye to PMI
- 4. Pay Down the Principal
- Get Started on the Right Foot
- 7 ways to reduce mortgage rates
- 1. Shop around
- 2. Improve your credit score
- 3. Choose your loan term carefully
- 4. Make a larger down payment
- 5. Buy mortgage points
- 6. Rate locks
- 7. Refinance your mortgage
- Low Mortgage Rates and High Home Prices Shatter Records, But Will It Last?
- Home Prices May Fall, But Expect Mortgage Rates to Remain Low
- Softening Prices, Not Bursting Bubbles
- Forbearances Are No Big Risk to the Market
Top 5 Reasons Why Mortgage Rates Go Up and Down – A & N Mortgage
By Neena Vlamis, President of A and N Mortgage
When you look at the current mortgage rates, you will see a range of different interest rates from different lenders and banks.
If you keep looking at those rates over a length of time, you might notice that, despite the range of offers, rates tend to go up or down in relative unison.
Understanding the trends behind Chicago mortgages can help you understand when to make a move on a property and get the best investment the market.
So, what makes mortgages go up and down?
Effect of inflation on mortgage rates
Inflation causes prices of all commodities to gradually increase. As that happens, the purchasing power of the average person dwindles, especially if income doesn’t rise at the same rate. Mortgage brokers, in response, have to increase interest rates to combat the hike caused by inflation.
If inflation rates are high, mortgages will increase. If inflation is slow, mortgage rates might remain steady or simply rise at a much slower pace. Inflation is inevitable so it will always play a factor in causing mortgage rates to slowly go up over time.
This rise can be combated by some of the other factors mentioned below.
Effect of the strength of the economy
A strong economy creates a strong demand for commodities and assets, including property. When GDP and employment rise, this is the sign of a growing economy. There are more people with more purchasing power, which means there’s a greater demand for real estate.
Where there is greater demand, there are higher mortgage rates. Because lenders only have a finite amount of money to lend, they have to charge higher mortgage interest rates so that they are able to lend more mortgages to more borrowers in future.
If the economy is taking a turn for the worse, and there is a greater supply than a demand, mortgage rates will go down with it.
Current scenario of the housing market
The same principles of supply and demand apply to the housing market, too. When there are more homes being built or resold, there is an increase in the demand for mortgages. As a result, the current mortgage rate will go up.
If there are fewer homes on the market, there will be fewer people applying for mortgages. This causes the mortgage rates to go down. Similarly, if there are more people renting vs. people buying homes, that also results in a drop in demand, which means a drop in the mortgage rates.
The shifts in the housing market are often restricted to specific areas and cities, so if you want to know what Chicago mortgage rates will be , keep an eye on the Chicago housing market.
Are there more new renters than new buyers? Are there fewer new homes being built or resold? If so, you can expect that Chicago mortgages will have lower interest rates.
The Federal Reserve
The Federal Reserve Bank plays a key role in interest rates, including mortgage rates, as well as the economy as a whole. This is primarily due to their monetary policy.
The Fed raises or lowers the federal fund’s rates, which is the interest rates that lenders charge each other for short-term loans. This creates a ripple effect in the rates of banks which goes on to influence long-term loans mortgages, too.
It’s not often there is a one-to-one shift in rates, but if there is a higher federal funds rate, you can expect that mortgage rates will rise as well.
The bond market
Investors, in general, turn to bonds when the economic outlook is poor. They are a safer investment than what is offered in most other markets. If people are investing in bonds, they’re not investing in other assets as much.
When there are more investors in bonds, the bond yield rises, and mortgage rates tend to rise as well. This is because banks and investment firms sell mortgage-backed bonds in the same market.
To make those bonds a more appealing investment, they have to make them competitive against the rest of the securities market and they do that by increasing the mortgage rate.
If you want to make the best property investment possible, keeping an eye on the current mortgage interest rests is your best bet.
A & N Mortgage is a mortgage broker based in Chicago that regularly updates mortgage rates the national averages.
By keeping your eye on the marketing and noting the trends mentioned above, you can get the mortgage you’ve been waiting for at the rate you can afford.
A and N Mortgage Services Inc, a mortgage broker in Chicago, IL provides you with high-quality home loan programs, including FHA home loans, tailored to fit your unique situation with some of the most competitive rates in the nation. Whether you are a first-time homebuyer, relocating to a new job, or buying an investment property, our expert team will help you use your new mortgage as a smart financial tool.
How to get the best mortgage rate
Buying a home is an adventure. First you figure out how much house you can afford. Later comes the mortgage. Knowing how to get the best mortgage rate starts with knowing the answers to these six questions.
1. Get a fixed rate or ARM?
Mortgages have either fixed interest rates or adjustable rates. Fixed-rate mortgages lock you into a consistent interest rate that you’ll pay over the life of the loan. The part of your mortgage payment that goes toward principal plus interest remains constant throughout the loan term, though insurance, property taxes and other costs may fluctuate.
The interest rate on an adjustable-rate mortgage can change over time. An ARM usually begins with an introductory period of 10, seven, five or three years (or even one year), during which your interest rate holds steady. After that, the rate may change periodically.
» MORE: Adjustable-rate vs. fixed-rate mortgages
ARMs usually offer lower introductory rates. But your ARM rate can rise after the introductory period ends, causing monthly mortgage payments to go up — substantially, in some cases.
» MORE: Get a mortgage preapproval
2. Should I pay points?
Discount points are fees borrowers pay to reduce the interest rate on their mortgages. One point is 1% of the loan amount, which typically reduces the mortgage rate by 0.25%, although the reduction can vary. If you take out a loan at 4.5% interest, you might be able to pay a $2,000 fee to reduce the rate to 4.25%.
When you pay discount points, you typically shell out thousands of dollars up front to save a few dollars every month. It takes several years for the monthly savings to add up to where they exceed the initial amount paid.
This break-even period varies depending on loan amount, the cost of the points and the interest rate. It's often seven to nine years.
If you don't plan to have the loan for that long, it's a good idea to skip the discount points.
» CALCULATE: Should I buy points?
3. What are the closing costs?
Closing costs are fees charged by the lender and third parties. Closing costs don't affect the mortgage rate (unless you pay discount points). But they do have an impact on your pocketbook.
Closing costs usually amount to about 3% of the purchase price of your home and are paid at the time you close, or finalize, the purchase.
Closing costs comprise various fees, including the lender's underwriting and processing charges, and title insurance and appraisal fees, among others.
You’re allowed to shop around for lower fees in some cases, and the Loan Estimate form will tell you which services you may shop for so you can reduce closing costs.
» MORE: Calculate your expected closing costs
4. Any first-time home buyer programs?
Before you settle on a mortgage, find out if you’re eligible for any special programs that make homebuying less costly. Many states offer help to first-time home buyers as well as repeat buyers.
Each state offers its own mix of programs for home buyers. Many states offer down payment assistance, often combined with favorable interest rates and tax breaks. Some programs are targeted geographically and others offer help to home buyers in certain professions, such as teachers, first responders and veterans.
» MORE: Find first-time home buyer programs in your state
Get answers to questions about your mortgage, travel, finances — and maintaining your peace of mind.
5. Down payment size?
Veterans and rural borrowers may qualify for loans that allow 100% financing, requiring no down payment. Other borrowers may qualify for mortgages that allow down payments as small as 3% or 3.5%. Here's a summary:
- VA loans: If you (or your spouse) are active military or a veteran, you might qualify for a mortgage guaranteed by the Department of Veterans Affairs.
- USDA loans: If you live in a rural area, the Department of Agriculture might guarantee a low- or no-down-payment mortgage and help cover closing costs.
- FHA loans: Mortgages insured by the Federal Housing Administration allow down payments as low as 3.5%. FHA-insured loans are more forgiving of low credit scores, but you pay for mortgage insurance for the life of the loan.
- Conventional loans with 3% down: Some borrowers may qualify for conventional loans, which aren't insured by the government, that allow down payments as low as 3%. The mortgages generally are for first-time or low- to moderate-income borrowers. These loans charge for private mortgage insurance, or PMI, which can be canceled after you have 20% or more in equity.
» MORE: Have you saved enough? Try our down payment calculator.
6. How do I compare?
Here are tips for comparing loan offers:
- Shop for loans within a set window of time. The three big credit bureaus encourage you to shop around. You have 14 to 45 days, depending on the scoring model, to apply for as many mortgages as you want with the same effect on your credit scores as applying for one loan.
- Compare closing costs using the Loan Estimates. Each lender is required to provide a Loan Estimate form with details of each loan's terms and fees. The Loan Estimate is designed to simplify the task of comparing mortgage offers.
» MORE: Find the best mortgage lender for you
10 Ways to Lower Your Mortgage Rate
Buying a home is the biggest purchase most people will make. And if you aren't aware of the financing options available, it could wind up costing you far more than you'd expect.
Controlling your homeownership costs begins with your mortgage and the interest rate attached to that mortgage. The lower you can push your mortgage rate, the less money you'll pay over the life of the loan.
Here are 10 ways you may be able to lower your mortgage rate.
1. Maintain a good credit score
The foundation of a low mortgage rate begins with keeping your credit score as high as possible. Lenders look at your credit score as a roadmap to your creditworthiness. A high score proves you're ly to repay your loan. And a low score means you're a riskier bet — which means higher interest charges for you.
The three credit bureaus (Experian, TransUnion, Equifax) tend to be quite secretive about how their scores are calculated. FICO® credit scores are calculated as follows:
This is one of the top lenders we've used personally to secure big savings. No commissions, no origination fee, low rates. Get a loan estimate instantly and $150 off closing costs.
- 35% is your payment history (so make those payments on time!)
- 30% is your credit utilization (use only 20% or less of your available credit, if possible)
- 15% is length of credit history (avoid closing accounts you've had for a long time that are in good standing)
- 10% is new credit accounts (only open new accounts when necessary)
- 10% is credit mix (lenders want to see that you can handle different types of loans, credit cards and personal loans)
2. Have a long and consistent work history
On top of a good credit score, mortgage lenders also want to see a consistent and long-tenured work history. If you've been working at the same place for many years and have consistent or growing annual income, lenders will be more ly to give you a home loan with an attractive rate.
Conversely, if you've changed jobs multiple times recently, lenders may be more leery of giving you a big loan because your income isn't as reliable.
Banks and credit unions will verify your employment status before you make an offer on a home and before the closing date of a home purchase.
If you've changed jobs or quit during the closing process, it could jeopardize your ability to get a home loan.
3. Shop around for the best rate
One of the smartest moves you can make: rate shop for the best mortgage. It's pretty easy to compare mortgage rates online. Take some time to compare online banks against national banks and local credit unions.
Credit unions are an especially good place to shop around. This is because they tend to have lower fees than traditional banks — and they pass some of these savings on to their members. Credit unions may also be more willing to work with consumers who have less-than-stellar credit profiles.
How's this for groundbreaking advice: Ask your bank to lower your rate. The worst-case scenario? They say “no.”
If you have an exceptional credit score, ask your lender to match a competitor's interest rate. You can also simply request a lower interest rate your exceptional credit history. Lenders want the business of people with excellent credit scores. They'll sometimes go to bat (so to speak) in order to get the business of high-credit borrowers.
5. Put more money down
Fifth, take into consideration how much money you plan to put down on your home purchase. Home loans in excess of $417,000 are classified as “jumbo loans,” and are perceived to carry more risk for the bank. These usually carry a higher interest rate, too.
Consumers may benefit by putting enough money down to lower a home loan the jumbo loan category. This strategy could save you thousands of dollars over the life of your loan.
Be careful, though: Very small home loans also have high interest rates. Try to keep your loan amount above $100,000 to hit the “sweet spot” of mortgage interest rates.
6. Shorten your loan
Financial institutions it when homebuyers repay loans quickly. Try taking out a 10-year or 15-year mortgage for a lower mortgage rate. In fact, any loan with a term shorter than 30 years should lower the interest rate you'll pay.
Another consideration homebuyers can make to lower their mortgage interest rate is adjustable-rate vs. fixed-rate mortgages. Adjustable-rate mortgages typically offer a lower rate for the first five or seven years. If you have the ability to pay off your home loan very quickly, an adjustable-rate mortgage may be worth considering.
Be careful, though. Adjustable-rate mortgages adjust higher once this time frame has ended. For consumers who are unprepared, or in instances where a large shift has occurred in interest rates over a five- or seven-year time frame, homebuyers could see a crippling increase in their monthly mortgage payment.
On the other hand, fixed-rate mortgages leave nothing to chance. You know what you're getting upfront. This trade-off is something homeowners should consider.
8. Pay for points
Mortgage points are an upfront fee paid by homebuyers to lower their mortgage rates. Each point is equal to 1% of the value of the loan, and paying a point typically lowers your ongoing interest rate by 0.125%. For instance, paying a point on a $250,000 loan would cost an extra $2,500, but it would reduce your interest rate by 0.125% over the life of the loan.
Points can save you money if you're going to remain in your home for a long time. Reducing your mortgage rate will save money over a 15- or 30-year time frame.
9. Set up automatic mortgage payments
Sometimes, the simplest things can save you money. Some lenders offer a lower interest rate for customers who set up an automatic mortgage payment. Just keep in mind that, if you close your account or change banks, your original lending bank could remove the interest rate discount applied for setting up an automatic mortgage payment.
Finally, current homeowners looking to lower their monthly mortgages should strongly consider refinancing their existing mortgages.
Homeowners should be following all of the aforementioned suggestions — especially shopping around for the best rates — when looking to refinance. Use a mortgage calculator to decide whether refinancing, including refinancing fees, is really worthwhile.
“,”author”:null,”date_published”:”2022-01-03T05:00:00.000Z”,”lead_image_url”:”https://m.foolcdn.com/media/affiliates/images/mortgage_agreement_nNK7avp.2e16d0ba.fill-1080×1080.jpg”,”dek”:null,”next_page_url”:null,”url”:”https://www.fool.com/the-ascent/mortgages/articles/ways-lower-your-mortgage-rate”,”domain”:”www.fool.com”,”excerpt”:”Your mortgage interest rate affects your finances for years. Read on for 10 ways to get your mortgage rate as low as possible.”,”word_count”:1047,”direction”:”ltr”,”total_pages”:1,”rendered_pages”:1}
4 Ways to Lower Your Mortgage Interest Payment | First Bank Mortgage
For most homeowners, your mortgage is your greatest monthly expense.
If monthly bills are weighing you down, you’re probably thinking about ways to trim your grocery budget, get rid of unneeded subscriptions or reduce your heating and cooling costs. All these tweaks can add up to big savings.
But did you know that if you lower your mortgage interest payment, you’ll ly have the biggest impact on your budget and the amount of cash you have in the bank?
If your mortgage is feeling a little heavy, check out these effective ways to lower your mortgage interest payment.
1. Ready, Set, Refinance
If you have good credit, refinancing is a great way to lower your monthly mortgage payment. This means you pay less interest – and less money – over the life of your loan.
To qualify for refinancing, homeowners must typically have good credit.
If your credit isn’t stellar, talk to your lender about government refinancing programs or other options that may make it possible.
2. Lengthen Your Loan
Depending on the number of years on your existing mortgage, you may be able to significantly reduce monthly expenses by increasing the term of your loan. If you have a 15 year mortgage, extending to a 30 term will cut down your payment.
Going this route is not without drawbacks – your interest rate will ly go up. But if you’re looking for greater cash flow because of other expenses in your life, a longer term means more money in your pocket at the end of the month.
Another upside? When you can, making additional payments on the mortgage as though you were on a 15year loan can help pay it down more quickly.
3. Say Goodbye to PMI
If you bought your home without putting down a 20% down payment, private mortgage insurance (PMI) is ly part of your loan. PMI is a special type of insurance that protects the lender against loss if you default on your loan and can add hundreds (or even thousands) to your mortgage each year.
But there’s good news! There are ways to eliminate PMI if you have a conventional loan. The first step is to repay enough of your mortgage – enough to get at least 20% equity in your home. Once you do, you can ask your lender to remove PMI from your loan.
It’s important to note that PMI doesn’t automatically come off your loan once you’ve reached 20% equity. You have to specifically request it.
Borrowers should discuss with their lender if they have made additional principal payments or improvements that increased the value or feel the local market value has appreciated.
Another option for a conventional loan borrower is to take care of PMI by paying the cost all at once, which generally includes a one-time fee.
Even though the fee may be a large amount, it may lower your mortgage interest payment. Borrowers may also pay a portion of the single premium at closing and the remainder in their monthly payment.
The result is a lower PMI premium and lower monthly total housing payment.
4. Pay Down the Principal
Although this is a long-term strategy, making extra payments on your mortgage each month can help you lower your mortgage interest payment over time. It also means you’ll pay off your mortgage faster.
What’s more, making double payments (or even adding a few hundred dollars to your payment each month) decreases the interest you pay over the life of your loan! These extra payments will build the equity you have in your home.
They’ll get you to the 20% mark faster, so you can request to have PMI removed.
Get Started on the Right Foot
It can be hard to wait when you’re ready to buy a home. If you’re just beginning the process and looking for ways to keep your mortgage payment low, having the 20% down payment is a great first step. Setting a larger amount of money aside also gives you options when it comes time to decide how much you want to pay for your mortgage each month.
Even if you’ve been approved and can afford a specific mortgage payment, a larger down payment lowers the amount of principal you owe and removes PMI costs that can add a large amount to your overall payment.
No matter what stage of the home buying (or home owning) process you’re in now, it helps to have a trusted advisor to answer your questions and create a plan that’s best for you and your financial situation.
At FirstBank Mortgage, our goal is to help our customers get to a better place – whether that’s in new home or a new financial position. For more information, questions or concerns, please email mortgageinfo@firstbankonline.
com and we’ll connect you with a loan officer in your area.
7 ways to reduce mortgage rates
Whether it's to make more money available for home renovations now or family trips down the road, reducing your mortgage rate can be a great way to save money. Here are seven ways you may be able to decrease your rate and reduce mortgage payments, both at signing and during your loan term.
1. Shop around
When looking for mortgages, be sure to contact several different lenders. Mortgage bankers, regional banks, national banks and local credit unions may all offer distinct loan products, each with their own rates and fees. Some lenders cater to new homeowners, while others are better for refinancing.
Compare your choices carefully and take your personal situation into account when choosing a lender.
Even if your real estate agent gives some suggestions, do your research to make sure you’re getting the right deal for your needs.
Since loan rates can change frequently, you should contact different lenders on the same day and around the same time to truly compare rates. Also factor in any associated fees when calculating the potential savings.
2. Improve your credit score
Regardless of the loan you choose, you’re ly to get a better mortgage rate if you have a higher credit score. Similar to making a bigger down payment on your mortgage, a high credit score can help you qualify for better rates and lower monthly payments.
To a lender, your credit score is indicative of your risk—the lower the score, the higher the risk. That's why lenders may charge higher interest rates to applicants with lower credit scores.
If you apply for a loan and have a good credit score, you're more ly to be offered a low interest rate.
However, if you already have a loan, it’s not too late to improve your credit score and qualify for better rates with a mortgage refinance.
To improve your credit score, first go over your credit report to see if you have any outstanding balances. Consider paying those and be sure to make your payments on time every month.
Also look for and correct any errors on your credit report as these can negatively impact your credit.
While a high credit score is ideal for mortgage approval, some affordable lending programs do accept lower credit scores.
3. Choose your loan term carefully
Short-term loans are less risky and, as a result, have lower mortgage rates. The trade-off for these kinds of loans are larger monthly payments since you're paying off the principal in a shorter time. With a longer-term loan, you spread the payments over a longer period of time, leading to lower monthly payments with a higher interest rate.
Short-term loans will generally save you more money in the long run, but long-term loans may leave you with more disposable income every month. If you're looking specifically for low mortgage interest rates and savings over the life of the loan, a short-term loan is your best bet.
4. Make a larger down payment
Simply put, the more money you put down towards your mortgage, the less you will owe on the loan. If you can make a larger down payment, you could have more equity in your home from the start.
Not only will you need to repay less principal (the amount you owe on a loan excluding interest), you'll also pay less interest over the life of the loan since it is calculated on the principal owed.
While some loans have low down payment options, the ability to pay more can reduce mortgage rates and monthly payments. The smaller the down payment, the riskier lenders view your loan, and the higher the interest rate you may have to pay.
5. Buy mortgage points
If you plan on owning your home for a long time, buying mortgage points might be a clever way to save money. Paid at the time of closing, each mortgage point has a value equal to 1 percent of your mortgage.
In exchange for these upfront payments, the interest rate is reduced and monthly mortgage payments are smaller. Keep in mind, however, the time it will take to recoup your savings.
Known as the break-even point, this is the length of time in months it will take for your total savings to add up to the cost of the points. If this time is longer than you plan to own the home, mortgage points may not be worth it for you.
6. Rate locks
To potentially reduce the impact of mortgage rate changes before you close on a home loan, consider locking in your interest rate. A rate lock avoids increased rates before closing on your mortgage. You may need to pay a fee to lock in a rate, but this could be worth it if you suspect rates may change.
Keep in mind that, while a rate lock protects you from higher mortgage rates, it also rules out lower rates. Talk to your lender about rate locks with float down provisions. The float down feature gives you a one-time opportunity to lower your locked-in rate to current market rates. There may be additional fees for this option.
7. Refinance your mortgage
Renegotiating the terms of your mortgage can save you money over the loan’s course. There are a variety of refinancing options available, each with their own pros and cons. Here are some refinancing options and ways they can save you money on your mortgage rate.
- If you're concerned about an impending increase in your adjustable-rate mortgage (ARM), consider refinancing your loan to a fixed-rate mortgage. This allows you to make consistent monthly principal and interest payments.
- You may also be able to change your existing ARM to another ARM with different terms. The Federal Reserve Board recommends looking at ARMs with low interest-rate caps. These limits prevent your mortgage payments from increasing past a certain amount.
- If you're in a better financial situation than you were when you first signed your loan, you could potentially negotiate your fixed-rate mortgage to a lower interest rate. This option is particularly feasible for people whose credit scores have increased or if rates have decreased. When refinancing a fixed-rate mortgage, you may also be able to renegotiate the length of your loan to better suit your needs.
There are numerous options for lowering your mortgage rate. With the various alternatives available, there’s ly a way to adjust loan payments that will work for you. Contact one of our Home Lending Advisors for assistance on how to reduce mortgage rates.
Low Mortgage Rates and High Home Prices Shatter Records, But Will It Last?
Editorial Note: Forbes may earn a commission on sales made from partner links on this page, but that doesn't affect our editors' opinions or evaluations.
As home prices shoot up across the country, wages stagnate and millions face unemployment, homeowners and buyers a want to know if the currently on-fire real estate market, nicknamed “boom in the gloom,” is in for a cooldown.
Despite a chaotic year, experts are still betting on housing.
By and large, the pandemic housing market has defied all expectations by outperforming the 2019 market in both volume and price. New home sales in September outpaced sales in the same month in 2019 by 32%, according to the Census Bureau.
And this isn’t because home prices were easy on the wallet. On the contrary, prices soared in August by 8% year-over-year, according to the Federal Housing Finance Agency’s latest U.S. House Price Index.
Of course, exceptionally low mortgage rates are tempting buyers, but even dirt cheap loans aren’t enough to offset high home prices in nearly every market.
In fact, median-income earners—those who made $72,900 annually—were only able to afford 58.3% of new and existing homes sold between the beginning of July and end of September, according to recent data from the National Association of Homebuilders. This is down from 59.6% in the second quarter of this year.
Related: Compare Personalized Mortgage and Refinance Rates From 6 Lenders
Home Prices May Fall, But Expect Mortgage Rates to Remain Low
The perfect storm of soaring home prices, wage growth stagnation and economic uncertainty due to Covid-19 will result in a home price correction, says James Stack, president of InvesTech Research and Stack Financial Management in White Fish, Montana.
“When you’re seeing the kind of a boom that leads to speculation and a disparity between prices and value, that’s where risk is created,” Stack says. “This high valuation has happened over the last 18 months, making homes unaffordable. Housing prices are most ly at their high. If interest rates increase we’ll see prices go down.”
So far, there’s no sign of mortgage rates rising. On Thursday, rates for the 30-year fixed-rate mortgage hit their 12th record low for the year, falling to 2.78%, according to Freddie Mac.
Rates are staying low thanks, in part, to major help from the Federal Reserve, which implemented a $1.25 trillion program to buy mortgage-backed securities (MBS) in order to inject liquidity into the market.
The Fed spends about $40 billion per month on MBS and they plan to continue, at least for the foreseeable future.
During Thursday’s Federal Open Market Committee (FOMC) meeting, Fed Chair Jerome Powell pledged to continue this program.
“Over coming months the Federal Reserve will increase its holdings of Treasury securities and agency mortgage-backed securities at least at the current pace to sustain smooth market functioning and help foster accommodative financial conditions, thereby supporting the flow of credit to households and businesses,” the Fed said in a statement.
Most experts predict that rates will stay low going into 2021, which will help to sustain lending activity.
Softening Prices, Not Bursting Bubbles
Low housing inventory is keeping home prices up, a scenario that makes sense. Scarcity typically drives up value, so as home construction picks up, experts predict that prices will soften, especially in overheated markets—but not crash, thanks in part to the current supply-and-demand equation.
Currently, there’s a housing deficit of about 1 million homes nationwide, with current inventory of resale and new single-family housing below 4 months’ supply.
“Given favorable homebuying demographics and historically low interest rates, this tightness in inventory has caused home prices to rise faster than income, harming housing affordability,” says Robert Dietz, senior vice president and chief economist at the National Association of Homebuilders.
The current pattern of eager buyers moving from urban cores to more affordable suburbs and even exurbs is also a good indicator that the market will remain strong.
This is especially true as millennials—the largest share of first-time homebuyers—get older and begin to have families. As Covid has changed work patterns, allowing people to work remotely, many of these buyers are moving away from big cities to more affordable areas.
Additionally, repeat buyers are upsizing in more rural areas as home offices and outdoor space has become a bigger priority since Covid.
“Let’s keep in mind that as demand moves out from core areas to inner suburbs, exurbs and even rural markets, the rising number of individuals in their 40s and 50s, prime homebuying years, will also increase. These are bullish indicators for single-family housing demand and construction,” Dietz says.
Forbearances Are No Big Risk to the Market
Currently, 5.4% of mortgage borrowers, or 2.9 million, are in active forbearance plans, which is slightly lower than the 5.7% from last week. In total, these mortgages are worth $584 billion in unpaid principal, according to data from Black Knight, a real estate data analytics company.
On paper, this can be an unnerving picture; however, today’s homeowners have options, says Michael Fratantoni, chief economist and senior vice president of research and industry technology for the Mortgage Bankers Association (MBA).
Homeowners facing financial hardship due to Covid might be able to exit forbearance and modify their loan, depending on their lender and their financial situation. A loan modification would change the terms of the loan (this might include lowering the interest rate, a principal reduction or a longer mortgage) in order to make the mortgage affordable.
However, for homeowners who don’t qualify for loan modifications, or still wouldn’t be able to afford the mortgage even with one, selling their home is still a good move.
Un the perilous times of the 2008 housing crisis when homeowners were underwater with their mortgages (they owed more than their home was valued at), many of today’s homeowners have record levels of equity in their home. About 3.5 million, or just one in 17, mortgaged homes in the third quarter of 2020 were seriously underwater, according to ATTOM Data Solutions.
“Supply constraint and rising prices means that if you have a homeowner who loses their job they can sell their home pretty fast in almost every market,” Fratantoni says. “If they bought a couple years ago they will sell and have money in their pocket.”
Related: Compare Personalized Mortgage And Refinance Rates From 6 Lenders