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Many choose to refinance a mortgage to lower monthly payments, pay off the loan faster or tap home equity for cash. Homeowners usually think of refinancing when interest rates are sinking or stable — and the current environment has been anything but. Still, swapping your old home loan for a new one could make financial sense for you. Read on to learn when to refinance a mortgage and when it might be better to consider other options.
When deciding if refinancing is right for you, consider current mortgage rates. The math isn’t as simple as comparing the interest rate you locked in when you were approved for your mortgage versus the rate you can qualify for now. There are several kinds of refinance options out there, each with unique pros and cons. Review this trio of factors from Bill Packer, chief operating officer of reverse mortgage lender Longbridge Financial, LLC, as you consider each:
Once you know these three things, you can calculate your return and see if it is positive, says Packer.
Some of the best reasons to refinance your mortgage include saving money on monthly payments and paying off your mortgage faster. More specifically, it’s often a good idea to refinance if you can lower your interest rate by one-half to three-quarters of a percentage point, and if you plan to stay in your home long enough to recoup the refinance closing costs.
If interest rates have dropped since you first obtained your mortgage, a rate-and-term refinance can provide you with a lower rate. You might also qualify for a better interest rate if your credit score has improved since taking out your current loan.
The best mortgage rates and terms go to those with the best credit (a score of at least 740), so check your credit report to understand your risk profile. If you’re carrying a lot of credit card debt or you’ve missed a payment recently, you might look like a riskier borrower.
You can use a cash-out refinance to tap your home’s equity and lower or pay off high-interest debt. Whether it’s credit card balances or other forms of debt that are costing you a fortune, using the funds from a cash-out refinance could save you several thousands of dollars.
If your home’s value has increased, you could refinance to get out of paying private mortgage insurance (PMI) on conventional loans or mortgage insurance premiums (MIP) on FHA loans. Most commercial home loan products require PMI until you reach 20 percent in equity. MIP on standard modern FHA loans (post-2013) stays in effect for the life of your loan, unless your down payment cleared a certain amount. If you paid at least 10 percent down, MIP goes away after 11 years of on-time payments.
Refinancing could also be sensible if you qualify for more competitive loan terms and are planning to stay put for some time to take advantage of the cost-savings. However, it might not be smart to refinance if you plan to move in the near future, which gives you little time to recoup the costs associated with taking out a new loan.
If you’re struggling to make your monthly mortgage payments, you can refinance to get a longer loan term, which means a smaller monthly payment. However, overall the loan will be more costly since you will be paying interest for a longer period.
Home renovations can be costly, but if they increase your home’s value, pulling out funds through a cash-out refinance could be a worthwhile investment.
It might not be smart to refinance for any of these reasons:
Refinancing may save you money in the long run, but it comes with closing costs you’ll need to be prepared to pay. The cost of refinancing your mortgage will depend on your property’s location, which company is servicing your loan and which closing cost fees apply to your specific situation. For example, you might need to pay an appraisal fee, an origination fee and an attorney fee.
Rather than pay all that money upfront, many lenders allow you to roll the closing costs into your principal balance and finance them as part of the loan. Keep in mind, though, that adding those costs to the loan only increases the total amount that will accrue interest, ultimately costing you more.
The amount you can save by refinancing depends on several factors, including your closing costs. If you refinance to a $250,000 loan and the closing costs total 2 percent of that, for example, you’d owe $5,000 at closing.
You won’t begin to reap the benefits of a refinance until you reach the break-even point — when the amount that you save exceeds the amount you spent on closing costs. To determine the break-even point on your refinance, divide the closing costs by the amount you’ll save each month with your new payment.
Let’s say that refinancing will save you $150 per month, and the closing costs on the new loan are $4,000.
$4,000 / $150 = 26.6 months
So, if you were to close your new loan today, you’d officially break even just over two years and two months from now. If you live in the home for five years after refinancing, the savings really start to add up — $9,000 total.
You can use Bankrate’s refinance break-even calculator to figure out how long it will take for the cost of a mortgage refinance to pay for itself. If you think you might sell the home before your break-even point, refinancing might not be worth it.
Let’s say you took out a 30-year mortgage for $320,000 at a fixed interest rate of 6.23 percent. Your monthly payment would be $1,966. Over the life of that loan, you’d pay about $707,901, which includes $387,901 in interest.
Now say about 15 years into the loan, you’ve paid $86,551 toward the principal and $257,499 in interest and you want to refinance the remaining $233,449 of your principal balance with a new 15-year fixed-rate loan at 5.11 percent.
The new loan would trim your monthly mortgage payment to $1,859 per month, giving you an additional $107 of wiggle room in your monthly budget. Over the life of the loan, you’d pay $334,756, of which $101,307 would be interest. Add in the $344,050 in principal and interest you paid on the previous mortgage, and your total cost will be $678,806.
By refinancing, you’d not only lower your monthly payments — you’d see a long-term savings of about $30,000.
Current mortgage | Refinance | |
---|---|---|
Monthly payment | $1,966 | $1,859 |
Interest rate | 6.23% | 5.11% |
Total payments | $707,901 | $678,806 |
Savings | $0 | $29,095 |
Is refinancing a good idea? If it frees up money in your monthly budget or reduces the overall cost of the loan, refinancing can be well worth the work and money.
That said, there’s no one correct path to do it. You might want to switch from an adjustable-rate mortgage to a fixed-rate loan that has the same monthly payment, or you might want to shorten your loan’s term from 30 years to 15 years and save yourself a bundle in interest charges. You could also simply move from one 30-year mortgage to another 30-year mortgage with a lower rate.
Additionally, refinancing allows you to get rid of PMI after you have accumulated 20 percent equity in your home.
A cash-out refinance is another option that allows you to pull equity from your home. You can use the funds however you see fit, whether it’s to pay off credit card debt or cover the cost of renovations that will improve your home’s value.
To decide if you should refinance your mortgage, conduct a cost-benefit analysis to see if it’s right for you. Make sure you understand how each mortgage refinance option works to inform your decision.
When you’re ready to move forward, start by shopping around to find lenders with refinance options that could work for you. Get quotes from three or more lenders and compare the figures to identify the most attractive loan offer.
How soon you can refinance a mortgage varies by the loan type. Some lenders require you to wait at least six months to refinance a conventional loan, particularly if you are seeking to refinance with the same lender, while others might let you refinance with no waiting period. Government-backed loans each have their own requirements, so check with your lender on waiting periods to refinance.
Source: bankrate.com
Americans are tumbling deeper into debt, with the typical household paying $1,583 a month on various loans, a recent study found.
That’s a more than $300 increase from people’s average monthly debt payment in 2020, according to LendingTree. The report, based on the anonymized credit reports of roughly 310,000 users from July 1 to Sept. 30, 2023, focuses on active debt such as mortgages, auto loans, credit cards, personal loans, student loans and other categories.
Mortgages make up the lion’s share of debt, the study found, with property owners making average monthly payments of $1,855 on their home loans. Auto loans account for the second-largest share of debt, with payments averaging $690 a month — an amount that continues to climb as interest rates on auto loans jump. The third-largest category of debt is personal loans, with payments of $517 a month on average.
Generation Xers (ages 43 to 58) carry the most debt, with $1,974 in average monthly payments. Baby boomers (59 to 77) are No. 2 with payments of $1,529, followed closely behind by Millennials (ages 27 to 42) at $1,490. Not surprisingly, given their youth, Gen Zers (ages 18 to 26) have the lowest average monthly debt at $645.
according to the Education Data Initiative.
Around the U.S., Maryland residents have the highest average monthly debt payments, at $1,850, followed by New Jersey residents ($1,770) and Coloradans ($1,734). The states with the lowest average monthly debt payment Mississippi ($1,236), followed by and Missouri and Ohio ($1,288).
Roughly a third of Americans say they have higher balances on their credit cards than they do in emergency savings, according to Bankrate. Sixty-three percent of U.S. adults point to inflation as the main reason why they are unable to save for the unexpected.
Source: cbsnews.com
Edelman, who joined M&T in 2016 and has served as president since February 2022, brings over 25 years of experience in commercial real estate finance, having facilitated transactions totaling over $6 billion throughout his career. “I am honored to lead this team as we expand access to capital markets and grow our strategic partnerships,” said … [Read more…]
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A home equity loan is a type of second mortgage secured by the equity in your home. It offers a set amount at a fixed interest rate, so it’s best for borrowers who know exactly how much money they need. You’ll receive the funds in a lump sum, then make regular monthly repayments amortized over the term of the loan, typically as long as 30 years.
Because your home is the collateral for the loan, the amount you’ll be able to borrow is related to its current market value. The interest rate you receive on a home equity loan (as with other loans) will vary depending on your lender, credit score, income and other factors.
While the housing sales have cooled in some areas in recent months due to higher mortgage rates, housing prices have continued to post gains – good news for the net worth of American homeowners. According to the Board of Governors of the Federal Reserve System, U.S. households possess a collective $32.6 trillion in home equity as of the third quarter of 2023.
That’s a record high, and it means that the vast majority of homeowners are sitting on a huge pile of equity that they can leverage to access cash, including through a home equity loan. In fact, according to TransUnion’s latest “Home Equity Trends Report,”, the median amount of tappable equity per homeowner is $254,000, and some householders are in an even better position: 5.8 million of them have more than $1 million of available equity.
2023 saw a reversal in the demand for tapping all that equity. As rates jumped, the number of borrowers interested in home equity loans – along with HELOCs, their line-of-credit cousins – dropped in the back half of last year. TransUnion’s data shows that HELOC originations in the third quarter of 2023 fell by 28 percent versus the year before. Home equity loans were only down by 3 percent, though – perhaps a reflection of a homeowner’s confidence in the predictability of a fixed-rate home equity loan versus the volatility of variable-rate HELOC (more on that below).
The average $30,000 HELOC rate as of the beginning of January 2024 — up from 7.62% in January 2023.
Source:
Bankrate national survey of lenders
As for 2024: The potential for Federal Reserve interest rate cuts could be good news for home equity loans. While the forecast doesn’t call for massive savings — for HE loans, anyway — any reduction in borrowing costs saves prospective borrowers some cash, and encourages them to turn to this financing tool.
As of late January 2024, home equity loan rates for the benchmark $30,000 loan are averaging just under 9 percent, within a tight range of 8.5 to 10 percent. While high compared to their average of six percent in 2022, that’s significantly lower than other forms of consumer debt. Credit card rates are lingering above the 20-percent mark, and personal loans can stretch into the 25–35 percent range for borrowers with less-than-perfect credit scores.
When you take out a home equity loan, the lender approves you for a loan amount based on the percentage of equity you have in your home and other factors. You’ll receive the loan proceeds in a lump sum, then repay what you borrowed in fixed monthly installments that include principal and interest over a set period. Although terms vary, home equity loans can be repaid over a period as long as 30 years.
Since the loan is secured by your home, the property is at risk for foreclosure if you can’t repay what you borrowed. If that happens, it can cause serious damage to your credit score, making it harder for you to qualify for future loans.
You can use the funds from a home equity loan for any purpose, but there’s a possible tax benefit if you use the money to improve your home. You can deduct the interest (up to the limit) if the home equity loan is used to “buy, build or substantially improve” the property. To do this, you’ll need to itemize your deductions.
Lenders have different requirements for home equity loans, but generally, the standards include:
Some of the best reasons to use a home equity loan include:
If you’re thinking about using a home equity loan and any of these describe you, think again:
To figure out how much you might be able to borrow with a home equity loan, you first need to understand how much home equity you actually have. Your equity is the essentially difference between how much your home is worth and how much you owe on your first mortgage. For example, if your home’s current fair market value is $500,000 and you owe $250,000, you have a 50 percent equity stake.
Most lenders will let you borrow up to 80 percent of your equity stake (some let you go as high as 85 or even 90 percent). However, there’s another factor to consider: How much all your loans amount to or your combined loan-to-value ratio (CLTV). Most home equity lenders will cap your total amount of home-secured debt – including your first mortgage – at 80 percent of the home’s market value. So, in that case, you would likely be able to borrow up to $150,000, taking your total mortgage debt to $400,000 (80 percent of $500,000). Bankrate’s home equity calculator can help you estimate your exact borrowing power.
A HELOC – short for home equity line of credit – is also secured by the equity in your home and has similar requirements to a home equity loan, it operates a bit differently. With a HELOC, you can borrow money on an as-needed basis, up to a set limit, typically over a 10-year draw period. During that time, you’ll make interest-only payments on what you borrow. This means that your payments may be smaller than a home equity loan, which includes both interest and principal. When the draw period on the HELOC ends, you’ll repay what you borrowed and any interest, usually over a repayment term of up to 20 years. Unlike home equity loans, HELOCs have variable interest rates, which means your monthly payments can change.
A home equity loan and a HELOC aren’t your only options for borrowing against your equity. Some other alternatives include:
Taking on any form of debt, including a home equity loan, has an impact on your credit score. After you close on a home equity loan, your score might decrease temporarily. Over time, as you continue to make timely payments on the loan, you might see your score improve, as well.
It varies by lender, but most home equity loans come with repayment periods between five years and 30 years. A longer loan term means you’ll get more affordable monthly payments. That said, you’ll also pay far more in interest. If you can afford the higher monthly payments, selecting a shorter term maximizes overall cost. The ideal is to find a compromise between the two: the maximum manageable payments and the shortest loan term.
Source: bankrate.com
“Sarah has extensive experience in housing policy, tax credits, and advocacy. Her knowledge, innovative thinking, and deep commitment to advancing affordable housing demonstrate that she will be a great addition to NAAHL”, Roberts said. “I am confident that Sarah’s leadership will create opportunities and address challenges for NAAHL members and carry on the organization’s mission … [Read more…]
Home mortgage rates have soared during the economic recovery from the pandemic, but the swelling ranks of homeowners facing steep interest payments this year may find some relief based on how they file their tax returns.
Thanks to the mortgage interest deduction, filers who choose to itemize their tax returns rather than take the standard deduction can deduct the entirety of their home interest payments in addition to taking other write-offs.
Some tax experts say that’s likely to be a more attractive option to more tax filers this season.
Atiya Brown, a certified public accountant and owner of The Savvy Accountant, said mortgage holders with with higher interest rate payments are more likely to get the most favorable returns by itemizing them, rather than taking the standard deduction, a comparison that she shows her clients.
“I definitely think that a lot more people are going to see the difference,” Brown said.
She added that she expects more filers will seek professional help this season. Choosing to itemize mortgage interest means having to itemize other sections of the tax returns as well, Brown said, which can add enough complexity to require an accountant.
The standard deduction is a specific dollar amount set each year by the IRS that filers can use to reduce their tax burden. It’s designed to save filers the time and resources often necessary to itemize deductions.
For the 2023 tax year, the standard deduction is $13,850 for single filers and $27,700 for married taxpayers filing jointly. But many homeowners could find the mortgage interest deduction a better option.
A single filer paying a 4% rate on a $500,000 home loan — equating to monthly interest payments of about $1,667, or $20,000 a year — could thus end up seeing substantial savings.
And many households are paying higher rates.
While mortgage rates have been falling since reaching a post-pandemic high of 7.8% last fall, the 30-year mortgage rate is currently still hovering above 6%.
Until the Tax Cuts and Jobs Act, passed by Republicans in 2017, the mortgage interest deduction could be applied to the first $1 million of the loan for a single flier and $500,000 for married couples filing separately.
Today, it only applies to the first $750,000 of a typical mortgage loan for single filers, or $375,000 for married couples filing separately. The change was meant to allow more people to take the standard deduction, which the TCJA also increased.
But the relevant portion of the law expires in 2025 and would cause the limit to go back up to $1 million — and there is no sign yet that Congress will keep the current limit, according to the Bipartisan Policy Center.
Kenneth Chavis IV, a senior wealth adviser at Versant Capital Management, said that while many new homeowners may not be used to itemizing their deductions, they are now more likely than ever to reap tax benefits from doing so, assuming many are among those living with higher mortgage interest payments.
“Interest rates have skyrocketed — but more people will be eligible for (more) mortgage interest deduction,” especially newer homebuyers, Chavis said.
Principal payments and down payments cannot be deducted on your taxes. Nor can closing costs, appraisal fees or insurance.
Mortgages on rental properties also cannot be deducted if they are not the filer’s primary residence.
And only the portion of a home used for living can be counted toward the deduction. In other words, you cannot double-dip if you plan to take any home office tax write-offs.
However, both late payment and pre-payment penalties are in many cases deductible.
Source: nbcnews.com
What are you most optimistic about in the mortgage market in 2024? | Mortgage Professional TV [embedded content] A new year is upon us – but what does that mean for the US mortgage market? In the final episode of this Big Question series, recorded in late 2023, a host of industry experts offered their … [Read more…]
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Taking out a mortgage comes with many costs — some upfront and some paid over long lengths of time. On a $300,000 mortgage, those costs might surprise you.
In fact, on a traditional 15- or 30-year loan of this size you might pay anywhere from $72,000 to $155,000 just in interest.
Learn more about how much a $300,000 mortgage will cost you in the long run:
Monthly mortgage payments always contain two things: principal and interest. In some cases, they might include other costs as well.
On a $300,000 mortgage with a 6% APR, you’d pay $2,531.57 per month on a 15-year loan and $1,798.65 on a 30-year loan, not including escrow. Escrow costs vary depending on your home’s location, insurer, and other details.
Here’s a quick look at what the monthly payment (principal and interest) would be for a $300,000 mortgage with varying interest rates:
Annual Percentage Rate (APR)
|
Monthly payment (15 year) |
Monthly payment (30 year) |
---|---|---|
$2,531.57 | $1,798.65 | |
$2,572.27 | $1,896.20 | |
$2,613.32 | $1,896.20 | |
$2,654.73 | $1,945.79 | |
$2,696.48 | $1,995.91 | |
$2,738.59 | $2,046.53 | |
$2,781.04 | $2,097.64 | |
$2,823.83 | $2,149.24 | |
$2,866.96 | $2,201.29 | |
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Check out: 20- vs 30-Year Mortgage: Is an Unusual Option Right for You?
To get a $300,000 home loan, you’ll want to get quotes from at least a few different lenders. Though this can be done by reaching out to each mortgage company directly, you can also compare lender options with an online marketplace like Credible.
Once you receive your quotes, you’ll want to compare them line by line. You should look at the interest rate, total costs on closing day, any origination fees, mortgage points you’re being charged, and more.
After you determine the best offer, you can move forward with that lender’s application and submit any required documentation.
Credible makes the process of comparing lender options easier — and it only takes a few minutes.
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Learn More: How to Know If You Should Buy a House
Before taking out a mortgage of this size (or any home loan for that matter), you’ll want to have a good handle on the total costs of the loan. That includes your closing costs, the down payment, the total interest you’ll pay, and the monthly payment the loan comes with.
You’ll always pay more interest on longer-term loans. So, for example, a 30-year loan would cost more in the long haul than a 15-year one would (though the 30-year loan would have a smaller monthly payment).
With a 30-year, $300,000 loan at a 6% interest rate, you’d pay $347,514.57 in total interest, and on a 15-year loan with the same rate, it’d be $155,682.69 — a whopping $191,831.88 less.
Use the below calculator to see how much interest you’ll pay, as well as what your home will cost you every month.
Enter your loan information to calculate how much you could pay
With a
$
home loan, you will pay
$
monthly and a total of
$
in interest over the life of your loan. You will pay a total of
$
over the life of the
mortgage.
An amortization schedule breaks down how much you’ll pay in interest and principal for every year of your loan’s term.
At the start of your loan, the bulk of your monthly payments will go toward interest, but as you get further into the loan term, more will be applied to the principal balance.
Here’s what an amortization schedule looks like for a 30-year, $300,000 mortgage with a 6% APR:
Year
Beginning balance |
Monthly payment |
Total interest paid |
Total principal paid |
Remaining balance |
|
---|---|---|---|---|---|
1 | $300,000.00 | $1,798.65 | $17,899.78 | $3,684.04 | $296,315.96 |
2 | $296,315.96 | $1,798.65 | $17,672.56 | $3,911.26 | $292,404.71 |
3 | $292,404.71 | $1,798.65 | $17,431.32 | $4,152.50 | $288,252.21 |
4 | $288,252.21 | $1,798.65 | $17,175.21 | $4,408.61 | $283,843.60 |
5 | $283,843.60 | $1,798.65 | $16,903.29 | $4,680.53 | $279,163.07 |
6 | $279,163.07 | $1,798.65 | $16,614.61 | $4,969.21 | $274,193.86 |
7 | $274,193.86 | $1,798.65 | $16,308.12 | $5,275.70 | $268,918.16 |
8 | $268,918.16 | $1,798.65 | $15,982.72 | $5,601.10 | $263,317.06 |
9 | $263,317.06 | $1,798.65 | $15,637.26 | $5,946.56 | $257,370.50 |
10 | $257,370.50 | $1,798.65 | $15,270.49 | $6,313.33 | $251,057.17 |
11 | $251,057.17 | $1,798.65 | $14,881.10 | $6,702.72 | $244,354.45 |
12 | $244,354.45 | $1,798.65 | $14,467.69 | $7,116.13 | $237,238.32 |
13 | $237,238.32 | $1,798.65 | $14,028.78 | $7,555.04 | $229,683.28 |
14 | $229,683.28 | $1,798.65 | $13,562.80 | $8,021.02 | $221,662.27 |
15 | $221,662.27 | $1,798.65 | $13,068.08 | $8,515.74 | $213,146.53 |
16 | $213,146.53 | $1,798.65 | $12,542.85 | $9,040.97 | $204,105.57 |
17 | $204,105.57 | $1,798.65 | $11,985.22 | $9,598.59 | $194,506.97 |
18 | $194,506.97 | $1,798.65 | $11,393.20 | $10,190.61 | $184,316.36 |
19 | $184,316.36 | $1,798.65 | $10,764.67 | $10,819.15 | $173,497.21 |
20 | $173,497.21 | $1,798.65 | $10,097.37 | $11,486.45 | $162,010.76 |
21 | $162,010.76 | $1,798.65 | $9,388.91 | $12,194.91 | $149,815.85 |
22 | $149,815.85 | $1,798.65 | $8,636.75 | $12,947.06 | $136,868.78 |
23 | $136,868.78 | $1,798.65 | $7,838.21 | $13,745.61 | $123,123.17 |
24 | $123,123.17 | $1,798.65 | $6,990.41 | $14,593.41 | $108,529.76 |
25 | $108,529.76 | $1,798.65 | $6,090.32 | $15,493.50 | $93,036.26 |
26 | $93,036.26 | $1,798.65 | $5,134.71 | $16,449.11 | $76,587.16 |
27 | $76,587.16 | $1,798.65 | $4,120.17 | $17,463.65 | $59,123.51 |
28 | $59,123.51 | $1,798.65 | $3,043.05 | $18,540.77 | $40,582.73 |
29 | $40,582.73 | $1,798.65 | $1,899.49 | $19,684.32 | $20,898.41 |
30 | $20,898.41 | $1,798.65 | $685.41 | $20,898.41 | $0.00 |
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Here’s what an amortization schedule looks like for a 15-year, $300,000 mortgage with a 6% APR:
Year
Beginning balance |
Monthly payment |
Total interest paid |
Total principal paid |
Remaining balance |
|
---|---|---|---|---|---|
1 | $300,000.00 | $2,531.57 | $17,653.84 | $12,725.00 | $287,275.00 |
2 | $287,275.00 | $2,531.57 | $16,868.99 | $13,509.85 | $273,765.15 |
3 | $273,765.15 | $2,531.57 | $16,035.74 | $14,343.11 | $259,422.04 |
4 | $259,422.04 | $2,531.57 | $15,151.08 | $15,227.76 | $244,194.27 |
5 | $244,194.27 | $2,531.57 | $14,211.87 | $16,166.98 | $228,027.30 |
6 | $228,027.30 | $2,531.57 | $13,214.72 | $17,164.12 | $210,863.17 |
7 | $210,863.17 | $2,531.57 | $12,156.08 | $18,222.77 | $192,640.41 |
8 | $192,640.41 | $2,531.57 | $11,032.14 | $19,346.71 | $173,293.70 |
9 | $173,293.70 | $2,531.57 | $9,838.88 | $20,539.97 | $152,753.73 |
10 | $152,753.73 | $2,531.57 | $8,572.02 | $21,806.83 | $130,946.90 |
11 | $130,946.90 | $2,531.57 | $7,227.02 | $23,151.83 | $107,795.08 |
12 | $107,795.08 | $2,531.57 | $5,799.06 | $24,579.78 | $83,215.29 |
13 | $83,215.29 | $2,531.57 | $4,283.04 | $26,095.81 | $57,119.49 |
14 | $57,119.49 | $2,531.57 | $2,673.51 | $27,705.34 | $29,414.15 |
15 | $29,414.15 | $2,531.57 | $964.70 | $29,414.15 | $0.00 |
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Finding a mortgage can be quite simple — especially when using a tool like Credible.
When filling your mortgage application out, you’ll want to have some financial details on hand, including your income, estimated credit score, homebuying budget, and info regarding your assets and savings.
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Here’s a step-by-step guide on how the mortgage process usually goes:
Keep Reading: How Long It Takes to Buy a House
Source: credible.com
Jaschok brings over 25 years of experience in call center operations, loan administration, mortgage loan servicing, loss mitigation, and bank and non‐bank financial institution management. Before joining Cenlar, she served as senior director and senior vice president of default servicing at Flagstar Bank. Her tenure at Citibank as SVP of vulnerability management prior to Flagstar … [Read more…]
A strong U.S. economy will be a boon for the housing market, Mortgage Bankers Association’s (MBA) chief economist said on Thursday, as it will buoy demand and as inflation continues to fall, mortgage rates will decline as well making home loans more affordable for buyers.
The U.S. economy accelerated at a faster-than-expected clip in the fourth quarter of 2023 at 3.3 percent, the Commerce Department’s Bureau of Economic Analysis revealed on Thursday.
Meanwhile, the personal consumption expenditures (PCE) price index—the Federal Reserve’s preferred measurement of inflation’s progress—jumped by 1.7 percent during the quarter. Core PCE, which excludes the often volatile food and energy prices, increased by 2 percent.
These dynamics bode well for the housing market that has been struggling under the weight of record-high mortgage rates, sparked in part by the Fed’s hiking of rate at the most aggressive clip since the 1980s to fight soaring inflation.
The Fed’s funds rate currently sits at 5.25 to 5.5 percent—the highest they have been in two decades—and policymakers have signaled that they will slash rates should inflation come down to their 2 percent target.
But an economy that may avoid a recession as inflation moderates without the Fed’s tight monetary policy doing too much damage to the jobs market would help the housing sector.
“Stronger economic growth will benefit the housing market, keeping demand robust,” Mike Fratantoni, MBA’s chief economist, said in a statement shared with Newsweek. “Moreover, today’s report also showed further reductions in inflation, which will enable the Federal Reserve to cut rates later this year—as they have been hinting.”
Mortgage rates ticked up slightly for the week ending January 25, Freddie Mac said on Thursday, with the 30-year fixed rate averaging 6.69 percent.
“The 30-year fixed-rate has remained within a very narrow range over the last month, settling in at 6.69% this week,” Sam Khater, Freddie Mac’s chief economist, said in a statement.
Rates look to have stabilized, Khater suggested, encouraging buyers to jump off the fence.
“Despite persistent inventory challenges, we anticipate a busier spring homebuying season than 2023, with home prices continuing to increase at a steady pace,” he said.
A slowdown in rates could have a negative impact on home buyers, some analysts say.
A decline in the cost of home loans would encourage more purchases, and this increase in demand will spark competition at a time when there is a limited supply of homes for sale.
More buyers who can afford mortgages entering the market will push up prices, analysts from Goldman Sachs said this week.
The investment bank’s experts project prices to soar by 5 percent in 2024, a marked revision from their earlier expectation of a 2 percent jump. That trend will continue through next year when prices are forecast to increase by nearly 4 percent, which is also a change from a previously estimated increase of close to 3 percent.
Amid the price increases, Goldman Sachs analysts anticipate that rates will fall to 6.63 percent for the year. This drop in rates from the near 8 percent highs of November 2023, will make house loans more affordable, sparking more demand for properties.
“We have very low inventory of houses for sale, which is generally supportive of prices, along with generally stable demand that is coming from things like household formation,” Roger Ashworth, senior strategist on the structured credit team at Goldman Sachs, said this week.
On Thursday, new home sales climbed up by 8 percent in December, according to government data, while prices declined to two-year lows. The fall in prices and a rise in sales was partly due to builders offering inducements to buyers, according to Yelena Maleyev, a senior economist at KPMG.
“Builders have pivoted to building smaller homes and offering more discounts and concessions, such as mortgage rate buydowns, to bring in buyers sidelined by rising mortgage rates,” she said in a note shared with Newsweek.
But the data from the U.S. Census Bureau also showed that inventory of newly built homes fell last month after going up the previous months. There were 453,000 houses available for sale at the end of December, which accounts for 8.2 months’ worth of supply.
This constituted a 3.5 percent decline from the same time a year ago, Maleyev pointed out.
The lack of inventory also comes at a time when the used homes market has struggled. Sales are down in that segment amid a lack of supply of homes as sellers are reluctant to give up their low rates for new home loans hovering in the mid-6 percent.
This lack of supply will be key to how prices shake out and the outlook for the year is not encouraging.
“If mortgage rates fall below 6 [percent] in 2024, more owners will feel comfortable listing their homes for sale, alleviating some of the shortages, but not enough to close the supply gap,” Maleyev said.
Newsweek is committed to challenging conventional wisdom and finding connections in the search for common ground.
Newsweek is committed to challenging conventional wisdom and finding connections in the search for common ground.
Source: newsweek.com