Today’s Mortgage Rates in Massachusetts

Massachusetts has some of the highest housing prices in the nation, especially in the popular Boston area. This state has an average overall home value of $464,000, which is much higher than the nationwide average of about $263,000. These high home prices are due, in part, to the central location of the state, the easy access to major metro areas and the many other perks that this state offers.

Despite the high home prices in Massachusetts, this could be the perfect time to buy a home in the state. Not only are the nationwide mortgage loan interest rates low across the board, but the Massachusetts mortgage rates are also at some of the lowest points ever.

Those rates, along with the state’s housing prices, are expected to rise in the next year. If you’re looking to move to Massachusetts, or if you’re a resident of this state and are ready to buy or refinance a home, here’s what you need to know.

Mortgage Rates in Massachusets

The mortgage interest rate table below is updated daily to reflect the most current mortgage rates available in the market. According to Bankrate’s latest survey of the nation’s largest mortgage lenders, these are the current average rates for a 30-year fixed, 15-year fixed, FHA and VA mortgage rates.

Product Rate Rate Last Week
30-Year Fixed Rate 3.170% 3.180%
20-Year Fixed Rate 2.960% 3.040%
15-Year Fixed Rate 2.500% 2.570%
10-Year Fixed Rate 2.390% 2.440%
30-Year FHA Rate 3.100% 3.100%
30-Year VA Rate 3.240% 3.240%

Rates data based on Boston, Massachusetts as of 3/5/2021

Mortgage Rates Trends

In this graph: On , the APR was for the 30-year fixed rate, for the 15-year fixed rate, and for the 5/1 adjustable-rate mortgage rate. These rates are updated almost every day based on Bankrate’s national survey of mortgage lenders.Toggle between the three rates on the graph and compare today’s rates to what they looked like in the past days.

Mortgage rates around the nation have reached their lowest levels ever over the last year due in major part to the COVID-19 pandemic and the actions the Fed took to lower rates during the coronavirus pandemic. Rates began falling in March at the start of the pandemic and have consistently dropped since that time, remaining low into the new year.

Massachusetts buyers may have access to mortgage rates that are even lower than the national average. Though these rates won’t exactly offset the high housing prices, they can help make homeownership a bit more affordable. In the second week of January 2021, the average rate on a 30-year fixed-rate mortgage in Massachusetts was 2.89%. During that time, the average 15-year fixed-rate mortgage loan in Massachusetts had a rate of 2.42%. The average rate for a 5/1 ARM was 2.80%, and the average rate on a 30-year fixed refinance in Massachusetts was just 2.95%.

There’s no way to know how rates will trend in the future, so it’s unclear whether the rates in this state will stay as low as they currently are. That said, many experts expect that rates will increase in early 2021.

[ Read: How to Calculate Your Mortgage ]

Massachusetts mortgage rates overview

The state of Massachusetts has the fourth-highest housing prices in the nation, especially in the Boston area. Prices in this state have increased dramatically over the past decade. The state’s average home price has increased more than $100,000 in just the past five years along.

The bad news for homebuyers is that prices are only expected to increase. Luckily, the state also has some of the most competitive mortgage rates.

Massachusetts homebuyers have plenty of options to choose from when it comes to financing a home. Common mortgage types include:

  • Conventional mortgage: Conventional mortgages are available with either fixed or adjustable rates with terms ranging from 15 to 30 years.
  • FHA loan: These loans are backed by the Federal Housing Administration to help low and moderate-income buyers get a mortgage.
  • VA loan: Backed by the U.S. Department of Veterans Affairs, these loans are meant to help current and former military members buy a no-down-payment home at a low interest rate.
  • USDA loan: Backed by the U.S. Department of Agriculture, these loans are used to help rural residents buy a home.

First time home buyer programs in the state of Massachusetts

The state of Massachusetts doesn’t directly offer any first-home homebuyer programs, but other organizations within the state do. MassHousing is an independent agency in the state that helps homebuyers find affordable housing solutions. MassHousing’s offerings include:

  • The MassHousing Mortgage — This program helps low and moderate-income borrowers buy a home as long as they meet certain income and credit requirements. The mortgage is available through more than 100 lenders in Massachusetts.
  • MassHousing Down Payment Assistance — This program provides buyers with down payment assistance for up to 5% of a home’s value. The maximum benefits vary depending on where in the state you are located.

[ Read: First-Time Home Buyer Programs and Grants ]

Most and least expensive places to live in Massachusetts

The average housing price in Massachusetts is well above the national average, but prices vary quite a bit depending on where you go. There’s a difference of more than $800,000 between the most affordable and most expensive cities in the state — showcasing just how wide of a price gap there is between areas in this state.

Least expensive places to buy real estate in Massachusetts

The areas below are based on Zillow’s Home Value Index, which was used to find the most affordable cities to buy real estate in Massachusetts. The numbers below reflect the typical home value for homes in the 35th to 65th percentile range.

Massachusetts has some of the highest housing prices in the nation, but there are a handful of cities that offer housing prices below (in some cases far below) the national average.

  • Springfield, MA: Average home price of $142,100
  • Worcester, MA: Average home price of $214,100
  • New Bedford, MA: Average home price of $223,400
  • Fall River, MA: Average home price of $234,300
  • Lawrence, MA: Average home price of $236,800

Most expensive places to buy real estate in Massachusetts

The average home prices below reflect the typical home value for homes in the 35th to 65th percentile range. A quick glance at a map will show you that each of the most expensive cities in Massachusetts are neighbors.

The top five most expensive places to buy real estate in Massachusetts includes the city of Boston, as well as its four neighbors to the west.

  • Newton, MA: Average home price of $982,600
  • Brookline, MA: Average home price of $822,900
  • Cambridge, MA: Average home price of $726,000
  • Somerville, MA: Average home price of $605,100
  • Boston, MA: Average home price $554,600

Massachusetts mortgage rates compared to the national average 

As noted, Massachusetts has the fourth-highest home prices in the nation, following only California, Washington, D.C. and Hawaii. One reason for the high home values is that the household income in Massachusetts is $20,000 above the national average. Housing prices in the state have also increased since the pandemic began, which is a trend spotted in many states.

Luckily, Massachusetts home buyers currently have access to lower mortgage rates than much of the nation. The nationwide average interest rate in the second week of January was 2.94% on a 30-year fixed-rate mortgage, while the average for the same loan in Massachusetts was 2.89%.

Already own a home and want to refinance?

Historically low interest rates make 2021 an excellent time to buy a home, and current homeowners can take advantage of the low rates as well. The refinance rates in this state were 0.06% below the national average as of the second week of January.

If you’re considering refinancing your mortgage, be sure to shop around for the best rate. Your raate will depend on factors, such as your credit score, overall financial picture and current home equity, but rates can also vary quite a bit from one lender to the next.

[ Read: How to Refinance Your Mortgage ]

Source: thesimpledollar.com

12 Reasons Today’s Housing Market Is Not the Great Recession All Over Again

Posted on April 27th, 2020

While it’s becoming easier to compare the housing bust that sparked the Great Recession with today’s uncertain climate, the two just aren’t the same.

You’re probably going to see lots of articles warning of the next housing crash, claiming homeowners will be unable to pay their mortgages and forced to sell due to COVID-19.

But those opinions may ignore a lot of real statistics that paint an entirely different picture.

I used actual numbers from the latest Black Knight Mortgage Monitor report for February 2020 to illustrate.

Greater Share of Homeowners with 10% or More in Equity

then vs. now

First off, today’s homeowners are flush with home equity. In 2007, 14.5% of homeowners had 10% or less in equity. Today, just 6.6% have less than 10% equity.

This is due to several years of strong appreciation coupled with deleveraging.

In other words, not tapping equity via a HELOC or a cash out refinance, while also paying down debt via regular principal and interest payments.

During the early 2000s, homeowners were serially refinancing their homes while also making interest-only payments.

This meant they were overleveraging themselves and often getting into loans they couldn’t actually afford due to lax underwriting standards.

Loan-to-Value Ratios (LTVs) Are Lower Today

To that same point, today’s loan-to-value ratios (LTVs) are a lot lower than they were a decade or so ago thanks to more prudent underwriting guidelines.

The total market combined LTV (CLTV), which includes second mortgages, was 57.4% in 2007, and just 52.3% today.

The average CLTV was 61.83% back then, and just 53.31% today. Again, this shows many homeowners have lots of equity, as opposed to a massive mortgage on an overpriced property.

Simply put, equity means options, and vice versa. Even if borrowers struggle to make mortgage payments, the equity cushion provides better exits like a normal home sale as opposed to a short sale.

It also disincentivizes things like strategic default, where homeowners voluntarily walk away from their “worthless homes.”

Average DTI Ratios Are Also Lower

In terms of borrower capacity to repay, debt-to-income ratios (DTIs) are also lower today than they were in 2007.

While the average DTI at origination was 34.5% back then, it’s currently 33.5%. You might say it’s not much different.

But consider this – how many loans were actually properly underwritten back then? How many were stated income, effectively making the DTI measure useless?

The answer is most loans relied on stated income back then, while today’s DTI ratios are driven by real tax returns, pay stubs, and so on.

Borrower Credit Scores Are Higher, Delinquency Rate Lower

Then we’ve got credit, which is also better than it was leading into the Great Recession.

In 2007, the average original credit score was 708, compared to 736 today. And the average current credit score is 713, much lower than the 747 today.

While credit score isn’t everything, combined with more homeowner equity and better quality mortgages means lower defaults.

And we’re seeing that, with the mortgage delinquency rate 4.92% in 2007 compared to 3.28% today.

Again, you can thank properly underwritten mortgages for that, and a homeowner’s desire to protect the equity they’ve accrued.

Payment-to-Income Ratios Are Much Lower

Part of it just has to do with affordability, or the payment-to-income ratio.

It’s “a measure of how well home prices are supported by current incomes and interest rates,” and is much stronger than in years past.

In 2007 it stood at 31.8%, and today just 20.9%, a testament to how affordable homes are despite prices being nominally high.

Remember, you have to factor in inflation between now and then, along with higher wages, lower mortgage rates, and so on.

While the home may cost more than it did at the subprime peak, it’s actually cheaper for the reasons mentioned.

And again, a borrower’s income is actually verified today, as opposed to them simply stating that they made X amount per month.

Much Less Subprime Lending Today

While credit profiles are mostly better today than they were, subprime lending still exists today.

In the mortgage industry, it’s defined as a sub-620 FICO score, which is all you need to get an FHA loan or a VA loan.

However, the number of active subprime loans in 2007 was a whopping 5.1 million. Today, it’s less than two million.

To make matters better, these homeowners generally have more equity and a boring old 30-year fixed as opposed to some exotic mortgage.

Fewer Adjustable-Rate Mortgages and Option ARMs

Speaking of mortgage product, the number of active adjustable-rate mortgages is nowhere close to what it was in 2007.

Entering the Great Recession, there were a staggering 12,890,000 ARMs in circulation. Today, just 3.2 million.

Additionally, 4.95 million of those 2007 ARMs were scheduled to reset (higher) within three years.

Just 320,000 of today’s ARMs are scheduled to reset in three years. These borrowers also have fantastic options to refinance to a lower or comparable fixed-rate mortgage.

Then there were the option ARMs, which numbered 2,230,000 in 2007. Those are/were truly toxic mortgages that total just 320,000 today.

So to summarize, today’s homeowners have more equity, higher FICO scores, lower DTI ratios, properly-underwritten loans, and mostly fixed-rate mortgages with interest rates at/near record lows.

Throw in the fact that housing inventory is at its lowest point in years and it’s hard to compare then to now, even with COVID-19 beginning to make us question everything.

Source: thetruthaboutmortgage.com

Smart Ways to Build Equity in Your New Home

Now that you’ve invested in a home, how do you increase its value?

That’s called “building equity.” Equity is the market value of your home or property, minus your outstanding mortgage debt. So, for example, if you can sell your home for $450,000 and you still owe $100,000, you have $350,000 in equity. Building equity is one the biggest financial benefits of ownership.

If you live in a market where home values are rising, yours may float up with the rising tide and your equity will increase without doing a thing.

Or you can work on growing your home’s value by decreasing the amount you owe and/or increasing the value of your property. Here are some ways to do both.

Mortgage payments

Part of every mortgage payment goes towards paying off your loan’s principal and interest, with most of the payment going to interest in the loan’s early years. You can use Zillow’s amortization calculator to estimate how much money will be paid over the life of your loan for principal and interest. If you pay down the principal faster, your equity should increase faster. This can be done a few different ways.

Paying more: If you have a 30-year mortgage, adding more to your payment either monthly or when you have extra cash can help you gain equity. If you pay more, make sure your lender applies it to your principal. This is a great way to use your tax refund, a bonus from work or an inheritance.

Paying faster: You could divide your monthly mortgage payment into two bi-weekly payments, for a total of 26. So instead of 12 payments a year, you make the equivalent of 13, paying down your mortgage faster and gaining more equity. But make sure to check with your lender first to make sure they accept bi-weekly payments. And make sure all the extra money goes immediately to the principal instead of waiting for the second half-payment. Reputable lenders will not charge a fee for bi-weekly payments.

Refinancing: If you have a 30-year mortgage, you might want to consider refinancing to a 15-year loan, which has a lower rate. Most consider this worthwhile only if you can drop your interest rate by at least 1.5%. Factor in any closing costs before making this move. Also make sure your mortgage doesn’t have a penalty for pre-payment. It’s not common, but it’s better to check.

Before you decide on any of these options, consider if it’s really the best use of your money. If you’re not maxed out on employer-matched saving accounts, perhaps you should be putting extra money into your 401(k) rather than paying off a low-interest mortgage. It’s smart to talk with a financial advisor to determine the best investment strategy for you.

Also make sure you have an emergency fund, typically 6 months of savings in case you fall ill or lose a job.

Renovate wisely

Making smart improvements and adding the right amenities to your home can also increase its market value, which means more equity for you.

How do you know which projects will bring the best return on your investment? Even though you’ve just moved into your new place, there are home improvements buyers typically love: bathrooms, attics, entrances, kitchen updates, garage doors and siding. Popular features can vary by area and home type, so consider what’s in demand in your market.

Also, be mindful of your market as you’re thinking about how much to invest in improving your home. The realities of a buyers or sellers market will have an impact on how much return you’ll get when you sell.

You can find more inspiration, ideas and guidance in Zillow Porchlight home improvement articles.

For new homeowners, Zillow’s design and home improvement videos show you how to tackle your first project.

Source: zillow.com

Investing in Treasury Inflation-Protected Securities (TIPS)

The Federal Reserve aims for an average annual inflation rate of 2%. But they don’t directly control the value of the dollar or the price of goods and services, and inflation sometimes leaps unexpectedly. Inflation dilutes the value of your retirement savings, and all other savings for that matter.

That’s precisely why you shouldn’t leave all your money sitting in a savings account. Instead, you can protect against inflation by investing money to earn a return higher than the pace of inflation. In the wake of the COVID-19 pandemic and the massive “printing” of new money to spend on stimulus measures, many investors have looked for inflation-proof investments to avoid a post-pandemic drop in the dollar’s value.

One of these strategies includes unique U.S. Treasury bonds called Treasury inflation-protected securities, otherwise known as TIPS.

How Do TIPS Work?

Treasury inflation-protected securities fluctuate in value specifically based on inflation rates. The Treasury ties their value directly to the Consumer Price Index (CPI), which measures inflation.

These bonds pay interest (coupon payments) twice per year based on a fixed rate declared when the Treasury first sells each bond. Investors receive an interest payment based on that interest percentage of the principal amount — the value of the bond. However because the principal amount changes along with inflation, so too do the semiannual payments.

The higher the inflation rate, the greater the jump in the value of the bond. But these adjustments work both ways: your principal and interest payments both fall during deflationary periods. If the CPI falls before your term is up, you are guaranteed to get your principal back, but will not benefit from any growth.

Because TIPS adjust in principal value — unlike normal bonds — they generally pay less in interest than normal Treasury bonds.

The Treasury issues TIPS at five-, 10-, and 30-year maturities. You can buy them new, directly from the Treasury, in increments of $100. Or you can buy them from other investors on the secondary market through a brokerage account like SoFi Invest.

For that matter, you can also buy them securitized as exchange-traded funds (ETFs) or mutual funds. These funds make TIPS easy to buy or sell instantly, but prices gyrate based on the market.

Example TIPS Investment

Confused yet? Don’t fret — TIPS work differently than normal bonds, which makes them hard for many investors to wrap their head around. An example helps clarify how they work.

Say you buy $1,000 in TIPS that pay 1% interest. In the first year, you receive $10 in interest (1% of $1,000), split into two semiannual payments of $5 apiece.

Over the course of that first year, inflation runs at 2%. So the face value — the principal amount — of your TIPS adjusts upward from $1,000 to $1,020 at the end of that year.

In the second year of ownership, you collect 1% of the new principal amount of $1,020. That comes to $10.20, again split into two semiannual payments, this time of $5.10 apiece.

At the end of that second year of ownership, the principal amount adjusts again, based on the inflation rate that year. If inflation jumps by 4% that second year, your principal amount adjusts upward to $1,060.80. For the following year, you collect interest payments equal to 1% of $1,060.80, or $10.61 total.

And so on, until the bond matures.

You can sell your TIPS bonds on the secondary market if you like. Or you could keep them until maturity, and receive the final adjusted principal amount back.

Advantages of TIPS

To begin with, TIPS are as risk-free as investments get. They come with the full backing of the U.S. government, they protect against inflation, pay a predetermined interest rate, and guarantee that you won’t lose your initial investment.

Upon maturity, you receive back more than you paid, in direct proportion to inflation since you purchased — assuming that inflation was positive during your period of ownership.

Your interest payments also rise over the course of your TIPS ownership, as the principal value rises. That adds another layer to your protection against inflation.

In short, TIPS offer straightforward protection against inflation, plus a small return.

Downsides of TIPS

That last point deserves special emphasis: a very small return. Investors don’t get rich form TIPS; they serve as more defensive investments.

As noted above, TIPS usually pay lower interest rates than traditional Treasury bonds. That’s the tradeoff for the upward mobility of the principal amount.

In a period of slow or no inflation, you earn a low return. Periods of zero growth do happen, especially with the Federal Reserve’s dovish stance in recent years keeping interest rates low, which hasn’t seen an accompanying rise in inflation. When Japan instituted similar policies in the late 1990s, a period of zero growth lasted for about a decade.

During periods of deflation, your interest payments actually fall since they are calculated off of the downwardly-adjusted principal.

Speaking of interest payments, you pay regular income taxes on them. The IRS taxes them like dividends, rather than capital gains, because you earn them as income within the same year.

How Do TIPS Differ From Regular Bonds?

Traditional bonds pay a predetermined interest rate for their entire lifespan. You earn interest each year, and when they mature, you get back your original principal amount (purchase price). The principal amount never changes.

The principal amount on TIPS does change, adjusting every year based on the inflation rate that year.

Imagine you purchased a traditional 10-year treasury bond paying 4% on a $1,000 investment. You would earn $40 in income every year, regardless of any changes in the economy, and then you’d receive the principal $1,000 back at the end of the 10-year period.

High inflation would eat into your returns because your $1,000 would be worth less when you got it back than when you invested it. And if the inflation rate surpasses your 4% interest rate, then your real return would in fact be negative.

If you instead invested in 10-year TIPS that started at only 3.5% with that same $1,000, your interest payments would start out lower at around $35. Then, the inflation adjustment would increase or decrease your principal on a monthly basis, which would in turn impact your interest payment.

If the rise in the inflation index increased your principal to $1,250, then your new interest payment would be $43.75. As inflation continues to rise, so do your regular payments.

Moreover, as long as the economy doesn’t experience deflation, you will also benefit from the upwardly-adjusted principal amount you receive back once the bonds mature.

Where Do TIPS Fit Into Your Portfolio?

Treasury inflation-protected securities offer a valuable hedging tool for your personal investment portfolio. They protect you against inflation without the heightened risk of commodities or precious metals.

That makes them low-risk, low-return investments — a safe-haven investment for playing defense, particularly if you worry a rise in inflation is coming. As low-risk investments, they make for a good short-term investment to simply avoid losing money to inflation.

I keep some of my capital in an ETF that holds TIPS to avoid losses from inflation while parking money. As a real estate investor, I typically set aside money for upcoming property purchases, but I don’t always know when I’ll need that money. A deal might come along next month, or I may need to wait a year for the right deal.

As safe as TIPS are, however, the majority of your money should probably work harder for you, earning a higher long-term return. Speak with an investment advisor about the ideal asset allocation for your age and long-term goals.


Final Word

If you suspect higher inflation lurks in the near future, TIPS can make a great addition to your portfolio.

With virtually no risk of losses and easy liquidity, they offer more security than other inflationary hedges. The federal government guarantees that you won’t lose money on them.

But that doesn’t mean they pay well. You could easily find yourself earning one-tenth the long-term average return of stocks. As you structure your portfolio, consider TIPS as a conservative backstop reserve, rather than the main force of your investment dollars out working to earn you money.

Source: moneycrashers.com

Should You Refinance?

You may not need a map to find your hidden treasure. It could be, literally, right beneath your feet. Sometimes, the best way to get the most out of owning a home is to refinance your mortgage. Refinancing can be a powerful tool that could help you lower monthly payments, pay off your mortgage faster, or save tens of thousands on interest in the long-run.. Many don’t understand how to refinance and others wonder if it’s the right decision. Here are some factors to consider.

Take Advantage of Low Interest Rates

In the past, interest rates were high and the amount of buyers was low. Today, it’s not uncommon to see rates below 3%. Interest rates are one of the biggest factors to consider when it comes to getting a home loan or a refinance.

The Low Interest Rate Advantage

Let’s say you have an interest rate on a 30-year mortgage for $300,000 at 5%*. Your monthly payment would be around $1,610. If some years have gone by and the amount you owe on the home has dropped to $260,000, a refinance could make your monthly financial picture look a lot prettier. Here’s how:

If your lender offers you a rate of 2.9%* on $260,000, your mortgage plummets to $1,082. Because you were paying $1,610 before, you will be saving $528 every month.
For the sake of simplicity, this example doesn’t take into account taxes and insurance, but if you were paying private mortgage insurance (PMI) before you refinanced, the lower principle and higher home value would free you up from that as well, resulting in additional savings.

Refinancing to Save on Your Mortgage as an Investment Strategy

With the help of some basic investment tools, you can save even more when you refinance. If your budget can sustain your current mortgage payment, you could still refinance for the purpose of using the money you save—to make more money. Here’s are some ways to use your refinancing savings as an investment vehicle:

  • Take the money you save and invest in CDs (certificates of deposit). You can save up and then invest or you can start as soon as you hit the minimum and open several at once.
  • Use the money to contribute to a retirement plan. This is one of the most profitable techniques because the money gains interest over a longer period of time. Eventually, you can have a pretty little nest egg waiting for you when retirement rolls around.
  • Invest in the stock market. Whether you go with traditional stocks, ETFs, or indices, a conservative strategy can still provide handsome rewards.
  • Invest in a business. You can put money into a business idea that’s been spinning in the back of your head for a while.
  • Refinancing for Home Improvement

    Home improvement projects that have been lingering for a while are easy to knock out if you have the cash to do it. Whether you want to take your home to the next level for personal reasons or to add to its value, refinancing can help you get your hands on the cash you need.

    If you want to boost your home’s value, you should first check to make sure the uptick in the appraisal is going to be more than the sum of the cost of the refinance and the improvements. It may be best to consult a realtor or do your own comps to figure out how much value you’ll be adding to your home. Here’s how to do it:

    • Find a graph of home values in your area—for your type of home—over the last 10 to 15 years. Print it out. If there’s an upward or downward trend, use a ruler to extrapolate the approximate selling price of your home when you plan to sell it. Alternatively, you can consult a licensed real estate agent. A local agent will be able to give you a good idea of what is in demand in your area.
    • If you plan on adding a bathroom, bedroom, or other space, find a similar graph for homes with that added feature and do the same thing.
    • Compare the expected value of your house when you may sell to what it would be worth without the remodel.

    If the difference is higher than the cost of your refinancing and remodeling, you will be making a profit.

    When to Think Twice About Refinancing

    If you have a low interest rate already, refinancing may not be worth the cost, especially if you recently purchased your home. If you owe close to what you paid for the home and the refinancing interest rate isn’t much lower than what you currently have, it may not be worth it.

    In addition to that, you should compare the monthly savings to the amount of time you plan to spend in the home, weighed against closing costs. If this is your forever home, a refi might be worth it if everything else is right.

    Consult Homie Loans™***

    Refinancing can be a powerful financial tool. If you’re ready to crack open the treasure chest by refinancing your home, Homie Loans is here to help. Homie Loans has quick turnaround on refinances, so you’re not left hanging. If you find a better rate, we can give you $500 back**. Learn more about Homie Loans today.

    *For illustrative purposes only. Rates Vary. Contact Homie Loans for a quote today.
    **Terms and conditions apply. Click here to learn more.
    ***Homie Loans, NMLS# 1016597, UT MB#8533383, AZ MB# 0945972

    Source: homie.com

    Home Prices vs. Gas Prices

    Last updated on August 27th, 2018

    With mortgage rates hitting 2015 highs last week, one might worry that the housing recovery will lose steam.

    The 30-year fixed climbed to 4.08% per the latest survey from Freddie Mac, up roughly half a percentage point from the lowest levels seen earlier this year.

    Clearly this reduces home buying affordability, and could make it more difficult to both buy and sell a home.

    But as I’ve mentioned before, if you can’t afford a home you’re interested in thanks to an interest rate fluctuation, you might want to reassess the entire decision.

    The good news is that there doesn’t seem to be a strong correlation between homes prices and mortgage rates.

    In other words, just because rates rise doesn’t mean home prices will go down or stop going up. There’s actually data to support this.

    Should We Look at Gas Prices Instead?

    Perhaps a better indicator of home prices is what you pay at the pump, as evidenced by a recent study from Florida Atlantic University and Longwood University.

    The collaborative effort, which used data spanning over 10 years, found that for every $1 decrease in gas prices, the average selling price of a home climbed by 2.4%.

    That’s about $4,000 more per sold property included in the study.

    Additionally, homes seem to sell more quickly when gas prices are low. Again, for that $1 per gallon decrease in gasoline price, the average time to sell a property falls by 25 days.

    There’s also a better chance of closing a sale when gas prices are lower. Indeed, that same $1 decrease was also shown to increase a seller’s chances of closing the sale by about 20 percent.

    So if you want homes to fly off the shelves at higher prices, lower the price of gas, not interest rates.

    If you’re wondering why gas prices matter, just consider consumer confidence.

    When prices at the pump are lower, consumers have more disposable income, which equates to a larger pool of prospective home buyers.

    That larger pool of buyers means a home has a better chance of selling and at a higher price.

    Bennie D. Waller, Ph.D., professor of finance and real estate and director of the Center for Financial Responsibility at Longwood University, also noted that the effort put forth by the listing broker increases as gas prices fall.

    The idea being that they have more money to spend on marketing a home, and maybe it’s cheaper to drive clients around town.

    Over the past year, gas prices have fallen about $1 per gallon despite a recent uptick during the past two months, according to the American Automobile Association (AAA).

    Gas prices this summer are also expected to be the lowest they’ve been since 2009.

    Don’t Rely on Gas Prices to Determine Housing Affordability

    Interestingly, gas prices are very volatile and certainly not locked in. We don’t prepay for gas.

    So consumers may think they’re better off for a few months while shopping for a home but if and when gas prices rise that supposed benefit quickly disappears.

    You can almost liken it to an adjustable-rate mortgage, which may start at a low interest rate but eventually adjusts higher and could land a borrower in a home they can’t really afford.

    That’s the strange thing about the data. A low fixed interest rate truly matters long-term since it’s what you’ll be paying for years to come, whereas low gas prices can be very short-lived and not really that beneficial.

    And let’s face it; gas prices are never going to stay put so choosing to buy a home on that basis isn’t very wise.

    But this might tell us when it’s a better time to sell your home, knowing there are more anxious buyers out there willing to pay top dollar.

    Perhaps you can even snap up a relative bargain when gas prices are high.

    About the Author: Colin Robertson

    Before creating this blog, Colin worked as an account executive for a wholesale mortgage lender in Los Angeles. He has been writing passionately about mortgages for nearly 15 years.

    Source: thetruthaboutmortgage.com

    The Federal Reserve Has Swooped In to Save Mortgage Rates

    Last updated on March 24th, 2020

    In light of the ongoing coronavirus outbreak, which were the Federal Reserve’s very own words, the Committee took bold action to lower the target range for the federal funds rate to 0% to 0.25%.

    That’s a full percentage point lower than the 1% to 1.25% it had been previously. And comes on top of the half-point cut executed just over two weeks ago.

    As such, the prime rate has fallen from 4.75% to 3.25%. The prime rate directly affects consumers via things like credit card interest rates and home equity lines of credit (HELOC)s because they’re typically tied to that index.

    For homeowners with HELOCs, their interest rates will adjust down 1.50%, which will provide meaningful monthly payment relief.

    But what about first-lien mortgage rates, which hit record lows a couple weeks ago, then shot back higher once the market was flooded with mortgage-backed securities (MBS).

    Well, the Fed also addressed that issue by effectively starting a new round of quantitative easing, which will probably be known as “QE4.”

    Fed Pledges to Buy Agency MBS to Lower Mortgage Rates (QE4)

    • Fed said coronavirus outbreak has hurt communities and disrupted economic activity in the United States
    • To promote maximum employment and price stability it has lowered federal funds rate to 0% to 0.25% range
    • Also announced it will increase its holdings of Treasury securities by at least $500 billion and holdings of agency mortgage-backed securities by at least $200 billion
    • This will lead to lower mortgage rates for homeowners

    The federal funds rate doesn’t directly affect consumer mortgage rates, you aren’t getting a 0% mortgage rate.

    However, the Fed’s emergency announcement to buy agency MBS does.

    First, here’s what they’re doing to combat a recession and ease global markets:

    “To support the smooth functioning of markets for Treasury securities and agency mortgage-backed securities that are central to the flow of credit to households and businesses, over coming months the Committee will increase its holdings of Treasury securities by at least $500 billion and its holdings of agency mortgage-backed securities by at least $200 billion,” the FOMC statement read.

    “The Committee will also reinvest all principal payments from the Federal Reserve’s holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities.

    In short, the Fed has come to the rescue of the mortgage market, which didn’t seem like it needed rescuing until excessive mortgage demand worked against consumers.

    Because there was a flood of mortgage applications, and not enough demand from investors of mortgage-backed securities, lenders were basically forced to raise mortgage rates to limit supply.

    But now that the Fed has pledged to purchase at least $200 billion in agency MBS, and reinvest payments into agency MBS, lenders shouldn’t have trouble fetching a higher price for the home loans they sell.

    As such, they’ll be able to decrease mortgage rates and perhaps we’ll see those record lows again.

    How Low Will Mortgage Rates Go with QE4 in Place?

    • 30-year fixed mortgage rates were averaging around 3.75%-4% before the news hit
    • When the Fed launched QE3 in September 2012 it led to record low mortgage rates
    • At that time the 30-year fixed fell from around 3.55% to 3.31%
    • Expect mortgage rates to return to the low 3s and perhaps to new all-time lows over time

    So we know mortgage lenders (and homeowners) are going to see some relief from QE4. The next logical question is how much will mortgage rates actually fall.

    As noted, interest rates were suppressed by an oversupply, but now that a whale of a buyer has pledged to buy hundreds of billions in MBS, we should see interest rates fall again.

    That’s great news for consumers, namely those looking to refinance mortgages or purchase a new home.

    The bad news is mortgage rates jumped more than half a percentage point last week as a result of the oversupply, and thus might not hit those all-time lows again. And even if they do, it could take some time to do so.

    When the Fed launched QE3 back in September 2012, the 30-year fixed averaged roughly 3.55%. During the weeks and months that followed, rates fell about 25 basis points.

    In fact, the prior record low for the 30-year fixed was 3.31%, recorded during the week ended November 21st, 2012.

    We’re in similar territory now, with mortgage rates pretty close to those September 2012 levels.

    So we might see rates move in familiar fashion, from around 3.75% to 3.375% and on down to 3.25% if all goes according to plan.

    Whether they hit 3% or even dip into the high 2s remains to be seen, but given the Fed’s pledge to buy billions in MBS, coupled with the 10-year bond yield below 1%, it’s certainly possible.

    I just wouldn’t expect lenders to go too crazy in lowering rates at the moment, given they still have a ton of demand and lots of applications in their pipelines to process.

    Still, it’s huge news because it means lenders have certainty now to originate ultra-cheap mortgages without fear of being stuck holding the bag.

    But it might take some time for rates to trickle down and reach record lows again. Again, hang tight here, as I mentioned before.

    About the Author: Colin Robertson

    Before creating this blog, Colin worked as an account executive for a wholesale mortgage lender in Los Angeles. He has been writing passionately about mortgages for nearly 15 years.

    Source: thetruthaboutmortgage.com

    Home Equity Loan Vs. Cash-Out Refinance

    Being a homeowner comes with plenty of perks: you get to set roots at your residence, decorate and paint however you want, and above all, use your home as an investment. If you’ve built up equity in your home, you may be looking for other ways to benefit from your investment.

    Home equity loans and cash-out refinances are two types of loans consumers can use to take advantage of their home equity by saving money on loan payments, simplifying debt repayment, and access additional capital.

    If you’ve considered either of these loan types, it’s important to compare how they work and the benefits and drawbacks of each before you make your decision. In this article, we’ll discuss home equity loans vs. cash-out benefits, drawbacks, and give you the information you need to determine which one is right for your financial situation.

    Home Equity Loan Definition

    A home equity loan allows you to borrow money using your home equity (the value of your property, minus remaining mortgage) as collateral. Home equity loans are also known as second mortgages.

    Cash-Out Refinance Definition

    A cash-out refinance is a loan that allows homeowners to convert their existing home equity into cash that they can use for whatever they want.

    Similarities Between Home Equity Loans And Cash-Out Refinances

    Home equity loans and cash-out refinances are both loan types that use home equity as loan collateral. In addition, they share the following similarities:

    • Both typically have fixed interest rates
    • Both generally require a post-transaction loan-to-value ratio of 90% or less to qualify
    • Both offer lump-sum payments

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    Comparing Home Equity Loan Vs. Cash-Out Refinances

    We’ll dive deeper into how home equity loans and cash-out refis work and when they’re most applicable a little later on in this post. For now, we’ll cover a few of the main differences between home equity loans and cash-out refinances:

    • Cash-out refinances offer adjustable rates
    • Cash-out refinances are a single loan, not an additional mortgage
    • Cash-out refis typically have lower interest rates
    • Home equity loan lenders typically pay part or all of the closing costs

    Reasons To Use A Home Equity Loan Or A Cash-Out Refinance

    Now that you know a little bit about them, let’s discuss why some homeowners choose home equity loans vs. cash-out refinances, and vice versa.

    Home Equity Loans

    Home equity loans enable you to borrow a predetermined amount of money, for a set term, at a fixed or variable rate, just like a mortgage. This is why home equity loans are considered “second mortgages.” Lenders typically allow homeowners to borrow 80 – 90% of the home’s value in total, which includes both mortgages. Home equity loans generally come with a 15-year payback time frame.

    Home equity loans can be used to refinance an existing mortgage or:

    If you’ve built up equity in your home, using a home equity loan to refinance can be especially effective when interest rates are high.

    Advantages Of Home Equity Loans

    • Home equity loans give you the option of fixed payments, which can help borrowers plan for monthly payments.
    • You have the option to maintain the rate and term of your first mortgage if you’re happy with it.
    • A home equity loan can help to avoid paying mortgage insurance.

    Disadvantages Of Home Equity Loans

    • Home equity loans often have higher rates than primary mortgages because lenders assume that you’ll pay off your first mortgage before you pay off your second.
    • Primary lender liens take precedence over home equity liens, so second mortgage lenders typically charge more because of the added risk they face.
    • Home equity loans that are used for expenses other than building, renovating, or buying a home do not qualify for tax-deductible interest, as a result of the 2017 Tax Cuts and Jobs Act.
    • Having two mortgages to pay off can complicate your debt repayment efforts.

    Cash-Out Refinances

    As you learned above, cash-out refinances share many of the same benefits of home equity loans, but both loan types have their own pros and cons, too. Let’s take a look.

    Advantages Of Cash-Out Refinances

    • You only have one mortgage to pay off, rather than two separate ones. This is less risky for the lender, which means you’ll likely benefit with a lower rate than a second mortgage.
    • Qualifying for a cash-out refinance is typically easier because lenders don’t need to worry about you paying off one mortgage before the other.
    • Cash-out refinance rates are typically lower than first mortgages, which means you’re saving more money on interest. Mortgage rates have been dipping since January 2019, the average rate for a 30-year mortgage when this post was written was 3.6%.
    • Since these interest rates are lower, you could use the loan to pay off debts with higher interest rates, like your credit card balance or student loans.

    Disadvantages Of Cash-Out Refinances

    • A cash-out refi will have different rates and terms from your original mortgage, which may not be ideal if you’re happy with your current terms.
    • You’ll need to budget for closing costs in order to take out a cash-out refinance.
    • You may need to pay mortgage insurance if you borrow more than 80% of your home’s value.
    • The amount of equity you have in your home determines how much you have access to borrow. If you don’t have enough equity to meet your goals, a cash-out refinance may not be beneficial for you.

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    Which Loan Is Right For Me?

    Should you opt for a cash-out refinance or a home equity loan? It depends on your financial situation and preferences to determine which loan makes the most sense for you! If you’re unsure, consider speaking with a financial advisor to see how the benefits and drawbacks of each loan type apply to your circumstances.

    In general, when evaluating loan types, you may want to consider:

    • How much equity you have in your home
    • Your current mortgage’s interest rate
    • The amount you want to borrow
    • How long you need/want to repay the loan
    • Whether you want fixed or flexible loan terms

    Now let’s take a look at a few examples where home equity loans and cash-out refinances can be most beneficial.

    A home equity loan may be a good choice if:

    • You want to use a second mortgage so that you don’t need to pay for mortgage insurance
    • Current mortgage rates are higher than the rate you got with your existing mortgage
    • You want to use your home’s value without impacting your existing mortgage

    A cash-out refinance may be a good option for you if:

    • You have enough equity to borrow what you want
    • You want to consolidate for a lower rate
    • You want to make home improvements
    • You would like to keep a single mortgage payment rather than multiple


    It’s
    important to note that since both of these loan types use your home’s equity as collateral, you run the risk of having your home foreclosed if you are unable to make your payments.

    Key Takeaways

    • Home equity loans and cash-out refis are both loans that use homeowner equity as collateral.
    • Both allow homeowners to access home value in the form of lump-sum payments.
    • It’s important to consider the pros and cons of both in order to make the best financial decision for your situation.
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    Source: mint.intuit.com