Why of Rising Interest Rates and When Renting can trump Buying

Why Are Mortgage Interest Rates Increasing?

According to Freddie Mac’s latest Primary Mortgage Market Survey, the 30-year fixed rate mortgage interest rate jumped up to 3.94% last week. Interest rates had been hovering around 3.5% since June, and many are wondering why there has been such a significant increase so quickly.

Why did rates go up?

Whenever there is a presidential election, there is uncertainty in the markets as to who will win. One way that this is noticeable is through the actions of investors. As we get closer to the first Tuesday of November, many investors pull their funds from the more volatile and less predictive stock market and instead, choose to invest in Treasury Bonds.
When this happens, the interest rate on Treasury Bonds does not have to be as high to entice investors to buy them, so interest rates go down.  Once the elections are over and a President has been elected, investors return to the stock market and other investments, leaving the Treasury to raise rates to make bonds more attractive again.
Simply put, the better the economy, the higher interest rates will go. For a more detailed explanation of the many factors that contribute to whether interest rates go up or down, you can follow this link to Investopedia.

The Good News

Even though rates are closer to 4% than they have been in nearly 6 months, they are still slightly below where we started 2016, at 3.97%.
The great news is that even at 4%, rates are still significantly lower than they have been over the last 4 decades, as you can see in the chart below.

Any increase in interest rate will impact your monthly housing costs when you secure a mortgage to buy your home. A recent Wall Street Journal article points out that, “While still only roughly half the average over the past 45 years, according to Freddie Mac, the quick rise has lenders worried that home loans could become more expensive far sooner than anticipated.”
Tom Simons, a Senior Economist at Jefferies LLC, touched on another possible outcome for higher rates:

“First-time buyers look at the monthly total, at what they can afford, so if the mortgage is eaten up by a higher interest expense then there’s less left over for price, for the principal. Buyers will be shopping in a lower price bracket; thus demand could shift a bit.”

Bottom Line

Interest rates are impacted by many factors, and even though they have increased recently, rates would have to reach 9.1% for renting to be cheaper than buying. Rates haven’t been that high since January of 1995, according to Freddie Mac.

This is a good time to buy a home.  Want help connecting with an Accredited Buyer's Representative near you?  Give me a call (Lori Koschnick 920-901-4373).  It's a pleasure to help!  

Where are Mortgage Interest Rates Heading?

Where are interest rates heading?

    http://goo.gl/zVmMTP

Rising mortgage rates are the top concern for homebuyers

 In the current housing market, prices are high, the supply of homes is low and credit is tight. But the number one concern for potential homebuyers is rising mortgage rates, according to a recent online survey by real estate research firm Trulia.

More than 40 percent of people who planned to eventually buy a home said they were worried about rising rates, followed by rising home prices and low inventory. Among those homeowners who were planning to buy a home within the next year, inventory just edged out rising rates, the survey said.

More business news

The 30-year fixed rate touched 4.5 percent last week, according to data from Freddie Mac, and there appears to be no turning back, economists say. If rates rise too fast, they have the potential to hurt the housing recovery by pricing homebuyers out of the market.

More than half of homebuyers also said that they would be discouraged from entering the market if rates reached 6 percent. Rates are still low by historical standards, but people have grown accustomed to them being below 4 percent, said Jed Kolko, chief economist at Trulia.

Mortgage rates have been under the spotlight lately following the Federal Reserve’s statements that it could wind down its stimulus program early if the economy keeps improving. The Fed’s bond-buying program has kept rates artificially low since the housing crash. As Fed Chairman Ben S. Bernanke testifies this week before Congress, his remarks will be carefully scrutinized to get a sense of the central bank’s policy direction for the rest of the year.

It’s logical for people to be worried about rising rates, Kolko said, but what they should really concentrate on is credit.

“Low mortgage rates don’t do much good if you can’t get a mortgage,” he said.
There are some signs that banks have started to loosen credit standards, Kolko said, but rising mortgage rates may actually help further loosen them. Mortgage credit availability increased in June compared with last year, according to data from the Mortgage Bankers Association.
“Some banks will look to do more home purchase lending as their refinancing business shrinks,” he said.

Homeowners who want to refinance their mortgages — to take advantage of low rates — are immediately affected by rising rates. The number of refinancing applications has fallen to its lowest level in two years over the past few weeks, according to data from the Mortgage Bankers Association.

In the near future, rising rates are more likely to push demand higher, Kolko and other economists say.

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CREDIT SUISSE: There's A Buyer Rush In The US Housing Market Unlike Anything We've Ever Seen

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Credit Suisse analysts conduct a monthly survey of real estate agents in 40 housing markets across the U.S. to get a ground-level view of the market around the country.

The results from their latest survey are out, and Credit Suisse analyst Daniel Oppenheim writes in a note to clients that "the breadth of strength in both pricing and traffic at the start of spring selling season" is "unprecedented in [the] survey's history (dating back to '05)."

Oppenheim says real estate agents are "widely citing increased buyer urgency due to the combination of persistent inventory shortages (driving prices higher) and signs of mortgage rates moving higher."

The data showed that prices rose in all 40 markets last month – the first time that's ever happened in the history of the survey. Credit Suisse's home price index, derived from the survey data, increased to 79.3 from 74.6 in January.

The strongest price increases were observed in California, Florida, Austin, Las Vegas, San Antonio, Seattle, Denver, and Phoenix, according to Oppenheim.

The buyer traffic index derived from survey data rose to 65.1 from 59.0. Oppenheim notes that "only Charleston, Orlando, and Tucson failed to meet agents' expectations, while notable improvement was seen in the formerly-lagging Chicago and New York markets along Texas markets (Austin, Dallas, and Houston each increased by at least 14 points)."

Meanwhile, housing supply continues to fall and the length of time it takes to sell a home fell to a new low. Oppenheim says both of these factors point to further price gains this spring.

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Rate on 30-Year Mortgage Drops to Record Low

Housing sales have been picking up, and the lowest mortgage rates in decades are a key reason why. The average rate on a 30-year mortgage stands at 3.51 percent. That's close to the record of 3.31 percent set last November. "It's the rising prices that is the game changer," Patrick Newport, an economist at IHS Global Insight in Lexington, Mass., told Bloomberg News. "Housing is going to be the key driver that will get economy on a higher growth path," he said. The ultra-low rates have also encouraged many people to refinance. That often leads to lower monthly payments and more spending money.

Mortgage Rates: Hurry Up and Wait (absence of news on the fiscal cliff)

The waiting game continues. As our Representatives in Washington DC, the President and the members of Congress dilly-dally instead of getting serious about negotiating a deal to avoid the major tax increases and automatic spending cuts known as the fiscal cliff, market participants have no choice but to wait for signs of movement. Today, with no new information to consider markets are calm.


Mortgage rates have ticked higher this morning after a positive start for the stock market. In the absence of news on the fiscal cliff, the stock market today is trading simply based on non-US and corporate news. A positive economic report from Germany and a halt to the recent fall in the stock of Apple has turned trading positive this morning.

Equally, if not more importantly today, the US Federal Reserve’s Open Market Committee begins a two-day meeting at which it is widely believed to announce a new program for the purchase of long-term government securities. It’s Operation Twist program, in which existing short-term securities in its portfolio were replaced with longer-term securities (primarily mortgage-backed securities) has helped to push rates to the all-time lows where they currently sit. However, Operation Twist will end at the end of this month. Without new buying by the Fed, rates would definitely rise, yet new purchases expand the Fed’s balance sheet which adds to the risk.

Tomorrow all eyes will be on the Fed and their decision to pursue additional quantitative easing. I also expect the market will be waiting to hear the thoughts of Chairman Bernanke in the post-meeting news conference regarding the fiscal-cliff and longer-term budget matters. I expect the Fed Chairman to let our political leaders “have it” with both barrels tomorrow and explain clearly just how much damage is possible if we fail to reach a deal on these fiscal matters.

Mortgage Rates: Low Mortgage Rates Unchanged After Big Jump in Home Prices

Low mortgage rates remain unchanged after a big jump in home prices was reported by CoreLogic, a data analysis firm. The CoreLogic home price index increased 6.3% in October as compared to a year ago, the largest annual jump in over six years dating back to June of 2006. This was the eighth consecutive gain in home prices across the nation on a year to year basis, according to CoreLogic. The firm indicated that prices fell 0.2% in October from September, but this decrease can be attributed to the end of the home selling and buying season.

Today’s 30 year fixed mortgage interest rates are as low as 3.10%, 15 year fixed mortgage rates are as low as 2.375% and 5/1 ARM loan rates are as low as 2.250%. Good credit and qualifications are required in order to receive these lowest mortgage rates available. Borrowers should be prepared to submit documentation for employment, income and assets. These are necessary for verification, debt to income ratios and to show the funds available to complete the mortgage transaction. An appraisal is also required for loan to value ratios and will be ordered by the lender. In some cases, lenders will request additional information after examining the loan file. Some borrowers, those who have loans that were sold to Fannie Mae or Freddie Mac prior to June 1, 2009, can refinance through HARP 2.0 which does not have loan to value caps or the need of an appraisal. This means that even borrowers with LTVs above 125% can obtain lower mortgage rate loans as long as the existing mortgage has been paid on time for the previous six months with no more than one late for the six months prior to that. While HARP 2.0 has been available with no LTV maximums since earlier this year, there are many borrowers who are eligible, but have not yet taken advantage of this opportunity. There are also others who have been denied and have not tried to obtain HARP 2.0 through another lender which is often a successful strategy. With the online form submission, eligible borrowers can receive more information and the opportunity to find a lender who will work with them. This process is safe since it does not require a social security number, as well as, quick since a response is returned almost instantly.

Current FHA 30 year fixed mortgage rates are as low as 3.00%, FHA 15 year fixed mortgage interest rates are as low as 2.625% and FHA 5/1 ARM loan rates are as low as 2.250%. FHA is a stronger contender when it comes to mortgages. Multiple mortgage products make it appealing to a wide variety of borrowers who may need a specific type of loan that is offered only through FHA. The low down payment requirements and flexible credit guidelines allow more borrowers to become homeowners which is something that may not be possible through other mortgage programs. Although FHA closing costs (APR) are high, which is due to various FHA fees and the upfront mortgage insurance premium, FHA allows these costs to be added to the loan amount in many cases. Seller concessions up to 6% can also be used for this purpose. After owning a home for a period of time, borrowers can refinance through the FHA streamline refinance with no cash out. The streamline does not require an appraisal, a credit history or any other documentation which makes it a quick and easy process. Borrowers who have had FHA mortgages that were endorsed prior to June 1, 2009 can use the FHA streamline to refinance to lower mortgage rates and will also receive lower upfront and annual mortgage insurance premiums for the life of the loan. This offer is only available through the end of 2013. The only requirement is that mortgage payments must be current and on time for the previous twelve months. More information about FHA loan products and the FHA streamline refinance can be obtained by submitting the online form which will return a response almost immediately.

Today’s jumbo 30 year fixed mortgage interest rates are as low as 3.125%, jumbo 15 year fixed mortgage rates are as low as 2.625% and jumbo 5/1 ARM loan rates are as low as 2.250%. Some borrowers need financing that is above the conforming and FHA loan limits, and for this purpose, jumbo mortgages are available. Excellent credit and qualifications are required in order to receive these lowest jumbo mortgage rates. Since these loans are actually private loans held by the lender, guidelines can be strict and will require substantial assets to fund the mortgage transaction, as well as, show the necessary months of reserves. As this market has been improving, some flexibility may be offered to well qualified borrowers. The best thing borrowers can do is to shop around for the best jumbo mortgage rates and terms for which they are eligible. This can easily be done by submitting the online form which does not require detailed personal information or a social security number.

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How to Cut the Cost of Your Mortgage Loan by at Least $50,000

November 14, 2012

 

 Despite the roller coaster-like ups and downs the housing market has experienced over the last several years, home ownership remains the key component of the American Dream for most citizens. But even considering that we’re seeing the best mortgage rates in history right now, financing the purchase of a home is a financial obligation that can put a great deal of strain on family budgets.

However, because mortgages are such large and long-lasting debts, significantly cutting their cost can be done by making fairly minor adjustments to the loan terms. It may sound impossible, but reducing the cost of your home loan by $50,000 — or much more — doesn’t require any drastic moves at all.

Two Ways to Knock Off $50k or More in Interest from Your Mortgage

Let’s use a 30-year fixed mortgage loan of $250,000 as our example. The following are two different refinancing strategies you can use to eliminate $50,000 in mortgage debt from your life.

Scenario #1: Reduce Your Mortgage Interest Rate by 1%

Mortgage interest rates have fallen dramatically in the past few years. According to HSH.com, the average interest rate for a 30-year fixed mortgage in 2008, just off the heels of the market crash, hovered above 6%. Today, mortgage interest rates for the same term average about 3.4%.

So consider the hypothetical mortgage loan above — even if you just recently obtained financing on a home within the last year or two and agreed to a mortgage rate of 5% APR, you can now refinance to, say, 4% APR. It doesn’t seem like much, but here’s how much you would save:
Using this mortgage calculator, we find that a $250,000 loan with a 5% interest rate, paid over thirty years, equals 360 payments (12 months multiplied by 30 years) of $1,342.

This equates to spending a total of $483,120 over the life of the loan. Subtract the initial principal of $250,000, and that leaves $233,120 worth of interest paid over the 30-year loan.

Now, calculate payments again with the lower interest rate of 4%. Instead, you would make 360 payments of $1,194, or $429,840 in total. Subtract the $250,000 principal and you’re left with $179,840 in total interest paid.

You just saved $53,280 on your mortgage.

Scenario #2: Cut Your Mortgage Term Length in Half

It’s easy for home owners to get caught up in the size of their monthly mortgage payments, rather than consider the entire cost of the loan. Unfortunately, lessening monthly payments often results in greatly increasing the overall amount of money you will pay for home financing.

Consider again the above 30-year fixed mortgage with a principal loan amount of $250,000 and the 4% interest rate. If instead of opting for a 30-year term, you agree on a 15-year mortgage instead — and we’ll keep the interest rate at 4% for simplicity’s sake — you will significantly reduce the total amount of interest paid over the life of the loan.

According to the above mortgage calculator, a $250,000 loan at 4%, paid over 15 years equals a monthly payment of $1,849.

This is a much larger payment required every month, but consider this: $1,849 multiplied by 180 payments (15 years) equals a total loan cost of $332,820. Subtract the $250,000 principal and you’re left with $82,820 in total interest paid over the life of the loan.

By simply opting for a 15-year fixed rate mortgage rather than the 30-year as depicted in Scenario #1, you save $97,020 in interest. That’s almost one hundred grand to put toward other important goals like a college fund, retirement savings or investing.

Should I Refinance?

While the hypothetical savings are impressive, refinancing is not a one-size-fits-all solution to saving money on a mortgage. It’s important to consider things like closing costs and how far into your current mortgage you have already paid before changing the terms of your loan.

For instance, refinancing means ending an existing mortgage and opening a new one, whether that’s with your same lender or someone else. Closing costs must be paid to refinance a loan, just as they were to obtain the original loan. Ensure that the amount of the total closing costs doesn’t cancel out the savings you would enjoy from a decreased interest rate.

Secondly, when changing the term length of your mortgage, consider how long you’ve held the current loan. Your loan amortizes according to a schedule devised by your lender, and most amortization schedules allocate a larger percentage of monthly mortgage payments towards interest rather than principal in the initial years of the loan. As the home loan gets closer to being paid off, more of your payments go toward paying down the principal.

That means if you’ve held your current mortgage for a long time, much of the money you’ve put into it has already paid down a large portion of interest. Refinancing the loan with new terms may not be a wise move.
A mortgage will likely be the biggest financial responsibility you ever take on, so it’s important to be realistic about what you can afford. But when determining that number, don’t forget to consider the long-term costs of a home loan — especially how much interest you will pay in total — and don’t get stuck on that monthly payment figure.

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Five Frequently Asked Questions on Mortgage Rates

Mortgage borrowers ask lenders a lot of questions, and the first usually is: What's your rate?
Whether they plan to purchase a home or refinance an existing mortgage, borrowers' chief concern is how they can get the lowest rate and save the most money.

By raising the rate question early, borrowers are also asking, though perhaps indirectly, whether a new loan is a good option for them, suggests Peter Thompson, a senior loan officer at Prospect Mortgage in Naperville, Ill.

"People want to make sure they're getting as good a deal as possible," Thompson says. "Even if they don't shop the rate, (they want to know) they're not getting taken advantage of, that they're getting the best deal. But they're also saying, 'What can you do? Is this something that's going to be possible?'"
Below are five of the most frequently asked questions about mortgages and mortgage rates that borrowers have for lenders.

What's Your Rate?

The question, "What's your rate?" is only natural, yet there is no one rate for all borrowers.
Rather, Thompson explains, lenders offer a range of rates, depending on myriad factors that include the property type, loan term, borrower's credit score, rate-lock duration, and whether the borrower will pay points or receive a rebate credited against the closing costs. (A point is an upfront fee equal to 1% of the loan amount.)

That variability means the lender needs more information from the borrower to quote a rate accurately, adds Greg Cook, a loan consultant at Golden Empire Mortgage Inc. in Temecula, Calif.
"Is this a purchase or refinance? A 30-year loan or 15-year loan? How much of a down payment are you going to make? Those are questions that we, as lenders, are trained to ask, but sometimes we don't get that chance," he says.

Can You Give a Lower Rate Than the Other Guy?

Many borrowers pose the rate question repeatedly, calling multiple lenders because they think that's a good way to shop for a mortgage. It isn't.
"They want to hear someone tell them a number that was lower than the last person. That's what they're looking for," Cook says.

Unfortunately, this quest for the one true lowest rate is mythical. All rates fluctuate from week to week, day to day or sometimes hour to hour.

Personalization and market risk make rate shopping difficult for borrowers, though many experts advise borrowers to shop for a loan, and the federal government requires lenders to use disclosure forms that encourage comparisons.

Jim Pomposelli, a mortgage banker at The Federal Savings Bank in Chicago, suggests that consumers should shop around -- up to a point.

"Don't run a Dutch auction where you are going back to everybody three times because at some point, you'll get what you pay for," he says.

Can I Get the Lowest Rate Among my Friends?

Another reason why some borrowers push so hard for the ultimate lowest rate is bragging rights. Cocktail-party talk and water-cooler chitchat are so important to them that reason flies out the window or at least takes a back seat to emotion.

"There is money to be saved, but when people really, really, really want to get that last bit off the table, I don't think it's fundamental economics," Pomposelli says. "It makes you feel good. It makes you feel smart. People want to feel they are smarter than the market."

May I Float Down the Rate?

Some lenders offer borrowers an option to "float down" a rate as an inducement to lock it -- in other words, to have a second chance to lock the rate if rates fall. Pomposelli says such programs are "quite expensive" for lenders, who have to make up the difference in another way.

"Banks aren't stupid," he says. "If you lock in at one rate and then you want to go lower, there is a charge in there somewhere."

Alternatively, borrowers can allow the rate to float to try to capture a downward tick, though that can be risky since rates can rise as well as drop, Pomposelli warns.

"You're thinking you might be able to save $20 (a month), but what if all of a sudden, you're paying $40 more?" he asks.

Can You Tell Me More About the Loan Terms?

Once the rate question has been raised and addressed, borrowers typically want more details about loan terms. Thompson says some frequently asked questions include: When can we close? Can you do this loan as a no-cost refinance? Is this a 30-year fixed-rate loan? Is there a prepayment penalty?
"A lot of the conversation is about making sure they know that it's the deal that it really is," he says.


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US mortgage rates for past 52 weeks at a glance

Average U.S. mortgage rates were little changed this week, staying near their record lows.
Here’s a look at rates for fixed and adjustable mortgages over the past 52 weeks:

	CurrentAvg.	Last week	52-weekHigh	52-weekLow
30-year Fixed	3.40	3.39	4.00	3.36
15-yearFixed	2.69	2.70	3.31	2.66
5-yearadjustable	2.73	2.74	2.98	2.71
1-yearadjustable	2.59	2.58	2.98	2.57
All values inPercentage points
Source: Freddie MacPrimary MortgageMarket Survey

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Mortgage Rates in U.S. Increase With 30-Year at 3.41%

By Prashant Gopal - Oct 25, 2012 9:00 AM CT

U.S. mortgage rates rose, increasing borrowing costs as home values extend a rebound from their worst crash since the 1930s.

The average rate for a 30-year fixed mortgage climbed to 3.41 percent in the week ended today from 3.37 percent, McLean, Virginia-based Freddie Mac said in a statement. The average 15-year rate rose to 2.72 percent, from 2.66 percent.

Mortgage rates fell to record lows this month, spurring demand for real estate and helping support prices as buyers compete for a shrinking supply of listings. Home values jumped 1.3 percent in the third quarter from the previous three months, the biggest gain since 2006, Zillow Inc., a Seattle-based property-data company, said this week.

“Now that people have confidence that a bottom was reached and is in the rear-view mirror, now there’s a willingness to take advantage of those historically low interest rates,”Russell Price, a Detroit-based senior economist for Ameriprise Financial Inc. (AMP), said in a telephone interview yesterday. “Now they’re much more effective in facilitating an ongoing recovery.”

Contracts to buy previously owned homes climbed 0.3 percent in September from the previous month and almost 15 percent from a year earlier, the National Association of Realtors said today.
Purchases of new homes jumped 5.7 percent in September to a 389,000 annual pace, the most since April 2010, figures from the Commerce Department showed yesterday.

The 30-year average reached 3.36 percent earlier this month, an all-time low, according to Freddie Mac.

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