Starting January 5, 2024, INB N.A. mortgage lenders will offer Illinois homebuyers a maximum of $6,000 to assist in acquiring a new home through the IHDAccess Forgivable program.
IHDAccess Forgivable aims to aid borrowers who qualify for a loan but may face challenges in covering down payment and closing costs due to factors such as student loans or other financial burdens. Administered by the Illinois Housing Development Authority (IHDA), the funds provided under IHDAccess Forgivable will be entirely forgiven after 10 years.
IHDA reports that nearly 10% of first-time homebuyers utilize IHDA Mortgage products to gain the additional leverage necessary for homeownership. The IHDAccess Forgivable option caters to first-time and repeat homebuyers, providing a highly competitive interest rate to minimize long-term mortgage expenses.
Key features of the IHDAccess Forgivable program:
Up to 4% of the purchase price (capped at $6,000) in aid for down payment and closing costs, forgiven monthly over 10 years – requiring no repayment.
A 30-year, fixed-rate mortgage with a manageable interest rate.
Accessible to first-time and repeat homebuyers across the state.
Eligibility criteria for Illinois homebuyers:
adherence to household income and purchase price limits;
a minimum credit score of 640;
property location within Illinois;
contribution of $1,000 or 1% of the purchase price, whichever is greater;
primary residence occupancy requirement;
completion of homeownership counselling before closing, with online and in-person options available.
INB VP, Mortgage Sales Manager Brad Dyer stated that partnering with IHDA Mortgage enables INB to fulfil the dream of homeownership for individuals who may otherwise not have the opportunity to own a home.
One of our bank’s core values is caring, and teaching our lending and back-office staff the intricacies of IHDAccess Forgivable is one way to go into the community and show them we care. We can help make Central Illinois more vibrant by showing families who want homeownership how the gift of an IHDAccess Forgivable loan can help them. We are thrilled to be part of the IHDA program.One of our bank’s core values is caring, and teaching our lending and back-office staff the intricacies of IHDAccess Forgivable is one way to go into the community and show them we care. We can help make Central Illinois more vibrant by showing families who want homeownership how the gift of an IHDAccess Forgivable loan can help them. We are thrilled to be part of the IHDA program.
INB Now Offering $6,000 in Downpayment Assistance for Homebuyers
Interested homeowners can learn more about IHDAccess Forgivable by contacting any INB mortgage lender.
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Mihaela Lica Butler is senior partner at Pamil Visions PR. She is a widely cited authority on public relations issues, with an experience of over 25 years in online PR, marketing, and SEO.She covers startups, online marketing, social media, SEO, and other topics of interest for Realty Biz News.
National mortgage rates trended lower across all terms compared to a week ago, according to data collected by Bankrate. Rates for 30-year fixed, 15-year fixed, 5/1 ARMs and jumbo loans all declined.
After topping 8 percent in late October, mortgage rates have somewhat moved lower. One big driver: Inflation has cooled, which means the Federal Reserve might end its rate increases. The Fed last hiked its key interest rate in July, which increased borrowing costs on a variety of financial products, including mortgages.
The central bank held firm at its November meeting, indicating it expects rates to stay on the higher side for the foreseeable future.
“Expectations of slower economic growth, moderating inflation and no more Fed interest rate hikes have been a downward influence on mortgage rates,” says Greg McBride, CFA, chief financial analyst for Bankrate.
The slight decline in mortgage rates comes alongside appreciating home prices. Home values have now climbed for eight months in a row, according to the S&P CoreLogic Case-Shiller index for September 2023.
Rates accurate as of December 13, 2023.
The rates listed above are averages based on the assumptions indicated here. Actual rates available across the site may vary. This story has been reviewed by Suzanne De Vita. All rate data accurate as of Wednesday, December 13th, 2023 at 7:30 a.m.
30-year mortgage rate retreats, -0.12%
The average rate for a 30-year fixed mortgage for today is 7.31 percent, a decrease of 12 basis points over the last seven days. A month ago, the average rate on a 30-year fixed mortgage was higher, at 7.75 percent.
At the current average rate, you’ll pay $686.25 per month in principal and interest for every $100,000 you borrow. That’s $8.18 lower, compared with last week.
Standard lending practices defer to the 30-year, fixed-rate mortgage as the go-to for most borrowers buying a home as it allows the borrower to scatter payments out over 30 years, keeping their monthly payment lower.
15-year fixed mortgage rate drops, -0.03%
The average rate for the benchmark 15-year fixed mortgage is 6.70 percent, down 3 basis points over the last seven days.
Monthly payments on a 15-year fixed mortgage at that rate will cost $882 per $100,000 borrowed. That’s clearly much higher than the monthly payment would be on a 30-year mortgage at that rate, but it comes with some big advantages: You’ll come out several thousand dollars ahead over the life of the loan in total interest paid and build equity much faster.
5/1 ARM rate slides, -0.07%
The average rate on a 5/1 ARM is 6.66 percent, down 7 basis points over the last week.
Adjustable-rate mortgages, or ARMs, are home loans that come with a floating interest rate. In other words, the interest rate will change at regular intervals, unlike fixed-rate mortgages. These types of loans are best for those who expect to refinance or sell before the first or second adjustment. Rates could be substantially higher when the loan first adjusts, and thereafter.
While borrowers shunned ARMs during the pandemic days of super-low rates, this type of loan has made a comeback as mortgage rates have risen.
Monthly payments on a 5/1 ARM at 6.66 percent would cost about $643 for each $100,000 borrowed over the initial five years, but could ratchet higher by hundreds of dollars afterward, depending on the loan’s terms.
Jumbo mortgage declines, -0.11%
The average rate for the benchmark jumbo mortgage is 7.37 percent, down 11 basis points over the last seven days. A month ago, the average rate for jumbo mortgages was higher, at 7.77 percent.
At the current average rate, you’ll pay $690.33 per month in principal and interest for every $100,000 you borrow. That’s $7.52 lower, compared with last week.
Refinance rates
30-year mortgage refinance drops, –0.12%
The average 30-year fixed-refinance rate is 7.45 percent, down 12 basis points over the last seven days. A month ago, the average rate on a 30-year fixed refinance was higher, at 7.95 percent.
At the current average rate, you’ll pay $695.79 per month in principal and interest for every $100,000 you borrow. That’s $8.22 lower, compared with last week.
Where are mortgage rates going?
Mortgage rates have done a 180 as of late, dipping back under 8 percent. With inflation cooling and 10-year Treasury yields declining, the 30-year fixed mortgage could head into the 6 percent range by next year, said Lawrence Yun, chief economist of the National Association of Realtors, at the group’s conference in November.
“I believe we’ve already reached the peak in terms of interest rates,” said Yun.
The rates on 30-year mortgages mostly follow the 10-year Treasury, which shifts continuously as economic conditions dictate, while the cost of variable-rate home loans mirror the Fed’s moves. These broader factors influence overall rate movement. As a borrower, you could be quoted a higher or lower rate compared to the trend.
What today’s rates mean for you and your mortgage
While mortgage rates move up and down on a daily basis,, there is some consensus that we won’t see rates back at 3 percent for some time. If you’re shopping for a mortgage now, it might be wise to lock your rate when you find an affordable loan. If your house-hunt is taking longer than anticipated, revisit your budget so you’ll know exactly how much house you can afford at prevailing market rates.
You could save serious money on interest by getting at least three loan offers, according to Freddie Mac research. You don’t have to stick with your bank or credit union, either. There are many types of mortgage lenders, including online-only and local, smaller shops.
“All too often, some [homebuyers] take the path of least resistance when seeking a mortgage, in part because the process of buying a home can be stressful, complicated and time-consuming,” says Mark Hamrick, senior economic analyst for Bankrate. “But when we’re talking about the potential of saving a lot of money, seeking the best deal on a mortgage has an excellent return on investment. Why leave that money on the table when all it takes is a bit more effort to shop around for the best rate, or lowest cost, on a mortgage?”
More on current mortgage rates
Methodology
Bankrate displays two sets of rate averages that are produced from two surveys we conduct: one daily (“overnight averages”) and the other weekly (“Bankrate Monitor averages”).
The rates on this page represent our overnight averages. For these averages, APRs and rates are based on no existing relationship or automatic payments.
Learn more about Bankrate’s rate averages, editorial guidelines and how we make money.
Mortgage rates continued their downward trajectory this week as the 10-year Treasury yield dropped below 4.2% for the first time since September, according to new data from Freddie Mac.
The 30-year, fixed mortgage rate averaged 7.03% for the week ending Dec. 7, according to Freddie Mac‘s Primary Mortgage Market Survey. That’s down significantly from last week’s 7.22% and up from 6.33% the same week a year ago.
Meanwhile, HousingWire’s Mortgage Rates Center showed Optimal Blue’s average 30-year fixed rate on conventional loans at 6.96% on Thursday.
The 30-year, fixed-rate mortgage fell by almost 80 basis points in six weeks, Sam Khater, Freddie Mac’s chief economist, said in a statement.
He noted that while the drop in mortgage rates initially prompted an uptick in mortgage demand, it’s not enough to attract more homebuyers to the housing market.
“Although these lower rates remain a welcome relief, it is clear they will have to further drop to more consistently reinvigorate demand,” Khater added.
Meanwhile, investors continue to be confident in the fact that the Federal Reserve is done with its rate hikes, especially after the release of cooler October job openings data on Tuesday.
Realtor.com Economist Jiayi Xu predicts that sustained improvement in inflation will bring average mortgage rates down to 6.5% by the end of 2024.
Markets in Northeast, Midwest will perform well in 2024
According to Realtor.com’s Top Housing Markets for 2024, the Northeast and Midwest markets will stand out thanks to their affordability, high quality of life and strong job markets. Declining interest rates will also breathe some life back into Southern California housing markets next year with an anticipated rebound.
Mortgage rates this week saw the biggest one-week decline in a year and potential homebuyers waiting for rates to drop responded, said Josh Mettle, division president and co-creator of NEO Home Loans.
“I think we were up right around 15% increase in the number of initial mortgage applications. That doesn’t take into consideration the number of buyers that had already applied and were sitting on the sidelines. They’ve also re-entered the home-buying process,” Mettle told HousingWire.
Many homebuyers are aware of the lack of inventory of existing homes for sale, he explained. Because of that, they want to avoid any potential bidding wars by getting back into the market earlier rather than waiting for mortgage rates to drop further.
Following the Federal Reserve’s decision to hold interest rates steady, the 10-year Treasury yield – the primary driver in the rise of longer-term interest rates – have been on the downswing. The 30-year, conventional fixed mortgage rate hit 7.48% on Friday, down from 7.55% a month ago, HousingWire’s Mortgage Rates Center showed.
The biggest question in the minds of loan originators is whether mortgage rates will fall through the end of 2023, providing some reprieve from the high-rate environment that has stifled origination volume for much of the year.
What’s going on with mortgage rates?
Economists pointed out that the market interpreted Federal ReserveChair Jerome Powell’s comments at the latest Federal Open Market Committee (FOMC) press conference as dovish compared to his previous remarks.
“The way I interpret what has happened, post-press conference for Powell, is that the market is going back to their behavior from earlier this year, where they kept signaling to the Fed that we want rate cuts,” Fannie Mae Chief Economist Doug Duncan told HousingWire. “So the fact that the Fed didn’t raise rates, the market rushed to say, ‘well, rates are going to get cut.’ The decline in the 10-year Treasury yield is simply that response,”
Duncan added that Powell’s comments were balanced, indicating that there has been progress in bringing inflation down but upside risk to inflation remained. Most importantly, Powell emphasized that the committee is not thinking about rate cuts.
“It will not surprise me at all if there’s some intervening speeches that push rates back up on the 10-year Treasury yield,” Duncan said.
Speaking on Nov. 9 – a little more than a week after the Fed held benchmark rates steady – Powell said that the central bank is not confident it has done enough to bring inflation down.
“My colleagues and I are gratified by this progress but expect that the process of getting inflation sustainably down to 2% has a long way to go,” Powell said on Thursday, addressing the International Monetary Fund audience in Washington, D.C.
The 10-year Treasury yield rose after the speech, largely driven by a bad bond auction, but the bond market fell from the peak of Thursday, noted Logan Mohtashami, HousingWire’s lead analyst.
“The bad bond auction on Thursday took yields and rates higher, and Powell’s hawkish tone kept rates up there, but yields on Friday morning fell just a little,” Mohtashami said. “It’ll be interesting to see what the (market) reaction will be to the next (CPI) report.”
Where are mortgage rates headed?
The direction of the 10-year Treasury yield and mortgage rates will depend on the incoming data – including the Consumer Price Index (CPI) and retail sales numbers, economists emphasized.
Danielle Hale, chief economist at Realtor.com, noted that the economy is in the monetary cycle where mortgage rate changes are based on “expectations which can shift in outsized fashion relative to changes in the actual data.”
The CPI report for October 2023 – set to release on Nov. 14 – could push mortgage rates up if CPI numbers come in higher than expected, Hale projected.
Headline inflation is broadly expected to be subdued month over month, partly due to oil prices easing from their late-September highs.
The streak of declining mortgage rates may continue into December if the next few inflation readings come in as expected, Hale projected.
Although Q3 economic growth came in “quite strong” at an annualized 9.4% rate and several job market indicators continue to show strength, as long inflation cools, the central bank is likely to pause at this level for some time, said Michael Fratantoni, MBA’s chief economist.
Fannie Mae and the MBA both expect the Fed to hold rates steady in its last 2023 FOMC meeting scheduled Dec. 12-13.
Is this enough to prop up mortgage origination?
With mortgage rates falling, homebuyers are starting to realize that this may be a great time for them to get into the market while there’s lower demand, said John Crivea II, certified mortgage advisor and loan originator at Mpire Financial Group.
Crivea II saw more than a triple increase in the number of leads in the past week and sees more activity on the horizon.
“If the rates drop more and more people get more excited and come back into the market, now you’re going to be back to where we were two years ago with multiple offers in the five to 10 range,” Crivea II said.
The welcome relief in mortgage rates, however, won’t help lenders a whole lot, economists expected.
“The change of 25 basis points (bps) or a quarter of a percent, puts a very few households in the game versus out of the game. So it’s not a game-changer. If rates fell below 6%, then you’d see a pick-up in production volume,” Duncan said.
Refinance applications tend to pick up when mortgage rates drop, Hale noted. But for the industry to see a mini refi boom, mortgage rates would need to fall below 7%.
“Mortgage rates have only exceeded 7% since August, and, given the sluggishness in home sales in recent months, there aren’t many homeowners who would need to refinance by a smaller dip,” Hale said.
The spread between mortgage rates and Treasury yields remains roughly 120 basis points wider than typical, due to a combination of factors, Fratantoni noted.
MBA’s baseline forecast is for mortgage rates to end 2023 at 7.2%, reach 6.1% at the end of 2024 and drop to 5.5% by 2025. Fannie Mae expects the average 30-year, fixed-rate mortgage to land at 6.8% in 2023 and move up to 6.9% in 2024.
Loan originators emphasized any decline in rates improves affordability while the lack of housing inventory and higher home prices will continue to be a challenge.
LOs are hopeful that the end of 2023 will be different from the same period last year when their origination business was paralyzed, largely due to mortgage rates sharply surpassing the 7% mark.
“We saw extreme pain last year at this time because a 7% mortgage was just absolutely shocking at that point after 3% rates. Nobody had gotten acclimated to that higher interest rate environment because it happened so fast,” Neo’s Mettle said.
“The fourth quarter and the first quarter are always the most challenging for the mortgage industry. People believe that rates peaked just above 8%. I think it’s going to be a much more favorable year for those reasons.”
Mortgage rates stabilized this week as the Federal Reserve decided to keep its rates unchanged Wednesday. However, mortgage rates still remain at a 23-year high.
The 30-year, fixed-rate mortgage averaged 7.76% as of Nov. 2, according to Freddie Mac‘s Primary Mortgage Market Survey. That’s down slightly from last week’s 7.79% and up from 6.95% the same week a year ago.
HousingWire’s Mortgage RatesCenter showed Optimal Blue’s average 30-year fixed rate for conventional loans at 7.692% on Thursday, compared to 7.83% the previous week.
“The 30-year, fixed-rate mortgage paused its multi-week climb but continues to hover under 8%,” Sam Khater, Freddie Mac’s chief economist, said in a statement. “The Federal Reserve again decided not to raise interest rates, but have not ruled out a hike before year-end.
He added: “Coupled with geopolitical uncertainty, this ambiguity around monetary policy will likely have an impact on the overall economic landscape and may continue to stall improvements in the housing market.”
The dance of the 10-year Treasury yield, mortgage rates
While mortgage rates are strongly influenced by the Fed’s policy, they also react to fluctuations in the 10-year Treasury yield, which has been historically high as of late.
On Wednesday, the U.S. Treasury Department announced that it would slow the pace of its longer-debt issuance, although the issuance will still continue to climb.
Hannah Jones, economic research analyst at Realtor.com, said this will keep upward pressure on mortgage rates.
“In general, an increase in a specific bond supply leads to a pick-up in the bond’s yields as more incentive is required to induce more investors to buy up the additional supply,” Jones said in a statement. “So, the increase in debt issuance keeps upward pressure on longer-term bond yields and, therefore, mortgage rates despite the increase being smaller-than-expected.”
As a result, mortgage rates should continue to hover near 8% in November, according to Bright MLS Chief Economist Lisa Sturtevant. They might tick down slightly by the end of the year.
“No one should expect a dramatic drop in rates next year. It is a new era where the average rate on a 30-year, fixed-rate mortgage will remain around 7% through early next year before declining to 6% by the end of 2024,” she said.
HousingWire Lead Analyst Logan Mohtashami discusses this week’s Fed meeting and what to expect in mortgage rates on this episode of HousingWire Daily podcast.
Rates for a 30-year, fixed-rate mortgage are the highest in over 20 years and may stay elevated for some time.
As borrowers reel from the sticker shock of conventional mortgages, lenders could see a surge of demand for alternative lending products, such as adjustable-rate mortgages (ARMs), for the first time since the financial crisis.
Most potential borrowers should familiarize themselves with how these products work. Without the proper guidance, they could be enticed by attractive introductory rates only to choose the wrong product for their personal or financial situation in the long term.
One way lenders can create value is to upgrade the shopping experience so borrowers can easily understand, compare and contrast the available products. Here are three tips that can help.
1. Ask the right questions upfront
Most lenders ask borrowers a few initial questions to understand their needs better. But many tend to focus on the basics, like whether a borrower is a first-time homebuyer.
With more products on the table, lenders will need more granular data to steer borrowers toward the right one. In many cases, that product may still be a fixed-rate mortgage. But for some borrowers, a less traditional loan type could make the most financial sense.
What is the best way to help borrowers choose? Start by asking enough questions early on to create a holistic borrower profile. We recommend enhancing your POS flow with an initial questionnaire. Ask these questions:
How long do they plan to stay in their home?
How comfortable are they with uncertainty?
How comfortable are they potentially making higher monthly payments after three, five or seven years?
Of course, the more questions you ask upfront, the more overwhelming the shopping process can feel to borrowers. To ease folks in, we suggest these action items:
Break down your questionnaire into manageable chunks.
Add a progress bar that displays what percent of the questionnaire remains.
Add a “Save and Continue Later” button that gives borrowers more flexibility (and allows you to keep folks engaged).
Add context about why you’re asking for specific information at every stage. Tooltips can be a powerful way to do so; they give borrowers the flexibility to toggle explanations. Tooltips are helpful when it comes to educating customers on your products, which we’ll dive into into next.
2. Educate borrowers early and often
Exotic lending products went mainstream in the early 2000s, leading, in part, to the 2008 financial crisis and the subsequent regulatory overhaul.
It’s worth emphasizing just how little borrowers knew about these products. In the run-up to 2008, many lenders emphasized low introductory mortgage rates and weren’t required to disclose the final terms until closing day. Without enough timely information to ask questions and compare options, borrowers had loans they couldn’t afford.
Today’s regulations require more precise disclosures earlier in the process to help people make more informed financial decisions. But they only apply after a borrower has submitted a loan application, which leaves room for ambiguity when shopping.
When lenders educate up front, they can add value when borrowers need it most. Here’s what we recommend:
Tailor your educational content to the borrower’s profile. Your initial questionnaire can help. For instance, if a borrower says they plan to relocate to Chicago in a few years, they might be a better candidate for a five-year ARM than someone who intends to stay in Charlotte indefinitely. At the comparison stage, you can prioritize education about that product and deprioritize products that might be a poor fit.
Help borrowers understand how rates may change over time. For instance, don’t just display a 3% teaser rate for an ARM. Instead, explain whether it adjusts annually or semiannually, along with the maximum annual adjustment factor and lifetime cap, plus what factors will affect the adjustable rate.
Offer information about refinancing. Many borrowers are familiar with the concept but may need to learn how it works. Spelling out the specifics may make some borrowers feel more comfortable taking on a fixed-rate loan at a 7% or higher rate.
Create an intuitive shopping experience. Avoid the dreaded info dump, where lending products display on an endless scroll with intimidating blocks of text. Instead, let borrowers compare a handful of products side by side. And present only the most important details first, with drop downs or tooltips that offer more information.
Even in a digital-first shopping landscape, loan officers are still a valuable resource for borrowers. Alongside on-screen sidebars and tooltips, ensure that borrowers can connect with a human expert for more hands-on guidance.
The goal is to help borrowers understand the risks and rewards of every product available and feel more confident in their decisions.
3. Invest in the right technology
The key to a top-notch shopping experience is a digital platform that allows for everything we’ve discussed so far — all while fitting seamlessly with the rest of your origination software. Creating that platform, though, is often easier said than done.
For instance, if you choose to build your platform, you’ll have plenty of freedom in its design. But you’ll have to integrate it with your point of sale (POS) on the back end. That could make for a longer and more complex project that eats up more of your organization’s resources.
On the other hand, it might be worth talking with your POS vendor about customizing the shopping experience to fit your goals. This route could help you save on development time.
However, most vendors don’t prioritize software features that seem like “nice to haves.” So you’ll have less control over the features that do get added, not to mention the development timeline. And keep in mind that if your vendor adds new capabilities, any lender — including your competitors — will be able to use them.
There’s no single best path here, but consider partnering with an experienced digital specialist to help you weigh the options available. This way, you can make the right decision for your business and your borrowers.
As “exotic” lending products become more attractive, borrowers will value lenders that demystify the shopping process to connect them with the right product for their needs.
But the truth is that helpful lenders win in any market conditions. By upgrading your shopping experience now, you can set yourself — and your borrowers — up for long-term success, no matter how the wind blows.
Steve Wolfe is an SVP of Banking and Fintech and Lloyd Booth is an Enterprise Solutions Executive at CI&T, a global digital specialist.
Average mortgage rates on 30-year fixed home loans continued their march towards 8% this week as the Treasury yield surpassed 5%. Rates have been steadily climbing for seven straight weeks, the longest consecutive increase since Spring 2022, according to Freddie Mac‘s Primary Mortgage Market Survey.
The average 30-year, fixed-rate mortgage rose to 7.79% as of Oct. 26. That’s up 16 basis points from the previous week and up 71 basis points from 7.08% a year ago, the survey showed.
HousingWire’s Mortgage Rates Center showed Optimal Blue’s average 30-year fixed rate for conventional loans at 7.83% on Thursday, compared to 7.78% the previous week.
“Rates have risen two full percentage points in 2023 alone and, as we head into Halloween, the impacts may scare potential homebuyers,” Sam Khater, Freddie Mac’s chief economist, said in a statement.
“Purchase activity has slowed to a virtual standstill, affordability remains a significant hurdle for many and the only way to address it is lower rates and greater inventory.”
Elevated rates are making a dent in the mortgage volume
As mortgage rates keep climbing, mortgage applications sank to their lowest level since 1995.
According to Bob Broeksmit, president and CEO of the Mortgage Bankers Association (MBA), the lack of inventory and the affordability challenges are the main culprits, steering prospective home shoppers to the sidelines.
“We expect mortgage volume to decline nearly 30% this year to $1.64 trillion, before an expected 19% rebound in 2024 as rates finally start to trend downward,” Broeksmit said in a statement.
The housing market remains resilient
However, recent home sales readings stressed the resiliency of the housing market as buyers kept shopping despite the challenging environment.
This week, new-home sales and pending-home sales posted month-over-month gains in September. However, Realtor.com Senior Economic Research Analyst Hannah Jones expects home sales activity to hover at a low level until the end of 2023.
The National Association of Realtors (NAR) also forecasts that existing-home sales will drop by 17.5% in 2023, reaching an annualized rate of 4.15 million units sold.
For mortgage rates to improve, investors will need reassurance that the Fed will pause its contractionary policy at its next meeting next week, Jones said in a statement.
Chances are, your mortgage interest probably makes up a large proportion of your monthly expenses.
So, how can you secure the best mortgage rate possible? The potential savings you unlock can have a substantial and lasting impact on your lifestyle and disposable income for many years to come.
Read on as we delve into the world of mortgage interest rates, where we’ll explore their implications, and reveal the keys to securing the most favorable terms.
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In this article (Skip to…)
What is interest?
Merriam-Webster defines interest as “a charge for borrowed money, generally a percentage of the amount borrowed.” You can think of it as the rent you pay to lenders for giving you access to their money.
That makes it different from the money you access. The money you borrow is called the “principal,” and the interest you pay is almost always a percentage of that.
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You pay the interest monthly, but it’s calculated annually. So, if you borrow $100,000 at a 5% interest rate, you’ll pay $5,000 a year in interest, which is $600 a month.
With an installment loan, such as a mortgage, you have to pay the principal back over the life of the loan plus the interest that accumulates.
Nearly all mortgages are “fully amortized.” That means, for a fixed-rate loan, all the monthly payments are the same. But your mortgage lender works them out so you zero your balance (including interest and the principal sum borrowed) when you make the final monthly payment at the end of your home loan’s term, often 30 years.
Amortization and mortgage interest
When you make your first monthly payment on a new mortgage, you owe a huge amount of money. So, almost all that payment goes on interest and your principal debt reduces only a little.
Gradually, over the years, your principal decreases and the interest you owe each month does, too. As each payment is made, the percentage allocated to interest shrinks while the portion allocated to reducing the debt grows larger and larger.
By the time you make your last payment, only a tiny bit is interest and nearly all of it reduces your principal — to zero.
This stuff isn’t easy. So, to discover more, read How mortgage amortization works, and why it matters.
How costly is mortgage interest?
When this was written, in October 2023, mortgage rates had just reached a 20-year high. So, it may feel as if mortgage interest is expensive.
But, of course, mortgages are actually one of the least costly ways of borrowing. The problem isn’t the mortgage interest itself but the large sums home buyers borrow over long periods.
Even a low interest rate can result in high monthly mortgage payments when you’re borrowing big. And your mortgage is likely to be by far your largest loan, at least at the start.
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What’s that in dollars?
So, how much might your mortgage interest cost on a conventional 30-year, fixed-rate mortgage? Let’s try an example. We’re basing it on the average rate for such a loan on the day this was written (7.522%) and on a property at the current median home price ($416,100 in the second quarter of 2023). We’ll assume a 20% down payment.
We fed those numbers into our mortgage calculator. And you can do the same with your own figures. Here’s what we got:
So, that’s $2,333 each month for the mortgage, plus property taxes and homeowners insurance. Did you spot the View Full Report button at the bottom? That provides the real low down:
So, as the Totals section reveals, “By the end of the 30-year mortgage loan term, you would pay $839,722 in total amount ($332,880 would be for the original loan amount and $506,845 in interest).”
Yes, that sounds a lot. But you’re borrowing a considerable loan amount over a long period of time.
It’s actually good value, especially when you think that, at the end, you’re likely to own outright a hugely valuable asset. And you won’t have had to pay rent for the next 30 years to live somewhere else.
By the way, the graph top-right on that page shows amortization in action.
What factors determine the mortgage interest you pay?
There are two main groups of factors that affect the mortgage rates you’ll be quoted: Things you can change and things you can’t.
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The economy and markets
Let’s start with what’s outside your control. That’s mostly the economy and its effect on the bond market for mortgage-backed securities. It’s that market that largely determines current mortgage rates.
Generally, mortgage rates fall when the economy’s in trouble and rise when it’s thriving. Inflation also plays a role, with above-average price rises tending to drive higher interest rates.
Your financial circumstances
Now, for some things you can control. Lending is all about risk. Lenders know that some of their home loans will turn bad. But which?
So, they analyze your personal finances to discover how much of a risk you pose. And the bigger that perceived risk, the higher the interest rate they’ll quote you. Of course, if they think there’s a serious danger of your mortgage loan turning bad, they’ll simply decline your application.
So, what specifically do they look for? It’s mainly:
A consistent and adequate source of income — That’s often easy to prove if you’re an employee. But it can be harder for the self-employed and those in the gig economy
A history of managing debt well — That’s your credit score and credit report
A manageable level of existing debts — How easily will you afford the new monthly mortgage payments once you’ve met all your other inescapable financial commitments each month? This is called your debt-to-income ratio or DTI
The down payment amount — The bigger your down payment, the more skin you have in the game. And that means you’re less of a risk. So a high down payment helps get you a lower interest rate. However, most borrowers can easily get a mortgage with just 3% or 3.5% (zero for some) down. This is your loan-to-value ratio (LTV)
Each of those normally affects a lender’s calculations when deciding what mortgage interest rate to quote you. And, of course, you have a great deal of control over them.
For example, spending time before you apply, building your credit score and reducing your debt (especially card balances) can earn you an appreciably lower interest rate.
Verify your home buying eligibility. Start here
Rate shopping
How would you like to save more than $1,000 a year for many years to come for just a few hours’ work?
It’s easy. And yet, a surprising number of mortgage borrowers pass on the opportunity.
In May 2023, federal regulator the Consumer Financial Protection Bureau (CFPB) released a report under the headline:
Mortgage data shows that borrowers could save $100 a month (or more) by choosing cheaper lenders
The CFPB found the spread among different lenders’ mortgage interest rates is “often around 50 basis points of the annual percentage rate.” Fifty basis points is 0.5%. So, it could be the difference between paying a rate of 7% or 6.5%. Try running those figures through our mortgage calculator!
The report also says that such differences apply in “virtually every segment of the mortgage housing market, including loans backed by Fannie Mae and Freddie Mac, Federal Housing Administration loans, U.S. Department of Veterans Affairs (Veterans Affairs) loans, as well as jumbo loans.”
And all you have to do to unlock such potential savings is request quotes from multiple lenders. Of course, your preferred lender may come up with the best deal. But suppose it doesn’t.
Fixed vs. adjustable-rate mortgage
Most Americans, especially first-time home buyers, opt for a fixed-rate mortgage (FRM). They’re prepared to pay a little more for the security of knowing that every monthly payment they make on their loan will be the same as the last one.
A fully amortized FRM is as predictable as anything gets. You pay the same $x each month until you finish paying down the loan — or sell the home or refinance the mortgage.
Verify your home buying eligibility. Start here
Adjustable-rate mortgages (ARMs) are very different. Or they can be after a few years.
An ARM almost always starts with a lower interest rate than an FRM. And that rate is fixed for an initial period, after which it can float in line with general interest rates, usually once each year.
So, a 5/1 ARM has a fixed rate for the first five years, a 7/1 ARM’s rate is fixed for seven years, and so on. The second numeral tells you how often the rate can be adjusted after the initial fixed-rate period expires. That numeral is most often a 1, meaning the rate can then float up or down annually (once a year).
That’s fine as long as mortgage rates remain low. But it can cause real pain when those interest rates shoot up, as they have done in recent years.
Luckily, that pain is usually moderated because most ARMs come with caps that limit how much their interest rates can rise. But even moderated pain is still pain.
Some home buyers can still be better off with ARMs. If you know you’ll be moving home within seven years and choose a loan type such as the 7/1 ARM, your mortgage interest rate will be fixed for as long as needed.
The bottom line on mortgage interest
At worst, mortgage interest is often seen as a practical necessity. The other option is to spend a lifetime paying rent, ultimately without the prospect of building valuable assets.
When mortgage rates are high, the weight of interest payments can become a substantial concern. But, if mortgage rates fall one day, refinancing is always an option, provided you remain creditworthy.
And there are things you can do to pay as low a mortgage interest rate as possible. Comparison shopping among several lenders could save you $100+ a month. Meanwhile, improving your credit score and reducing your existing debts can make another big difference.
Homeownership remains as much a part of the American dream as it always has. If you’re ready to fulfill your dream, don’t delay.
Time to make a move? Let us find the right mortgage for you
Rates on the 30-year fixed-rate mortgage eclipsed 8% this week as the Treasury yield surpassed 4.9% for the first time since 2007, according to one index.
Per Mortgage News Daily, mortgage rates touched 8.03% on Wednesday, up from 7.69% the previous week. HousingWire’s Mortgage Rates Center showed Optimal Blue’s average 30-year fixed rate for conventional loans at 7.78% on Wednesday, compared to 7.52% the previous week.
Both indexes showed higher rates than the Freddie Mac‘s Primary Mortgage Market Survey, which focuses on conventional and conforming loans with a 20% down payment, and recorded the 30-year, fixed-rate mortgage at 7.63% as of Oct. 19, up 6 basis points from the prior week. By contrast, the 30-year, fixed-rate mortgage was at 6.94% a year ago at this time.
Mortgage rates in the 8% range are further impacting already strained levels of affordability, Sam Khater, Freddie Mac’s chief economist, said in a statement.
“In this environment, it’s important that borrowers shop around with multiple lenders for the best mortgage rate,” Khater said. “With research showing down payment is the single largest barrier to first-time homebuyers attaining homeownership, borrowers should also ask their lender about down payment assistance.”
While high rates are stifling homebuyers, homebuilders are feeling the brunt as well, Khater noted.
“Incoming data shows that the construction of new homes rebounded in September but as rates keep rising, home builders appear to be losing confidence. As a result, we expect construction to trend down in the short-term,” he said.
On Tuesday, the builder confidence fell to 40, its lowest point since January 2023, according to the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI).
Bob Broeksmit, the president and CEO of the Mortgage Bankers Association, said the organization expects rates to level off and fall over the next quarter.
“Mortgage application activity is now at its lowest level in 29 years as high mortgage rates, limited housing inventory, and affordability challenges continue to constrain borrowers,” he said in a statement. “While 2023 has been a tough time for the housing market, MBA expects that mortgage rates will moderate heading into 2024, which should bring some relief to those looking to buy a home.”
Still, inventory remains a huge problem for the housing market. Though inventory has ticked up of late, existing home sales are still down double-digits from last year and many homeowners are reluctant to give up sub 4% rates when borrowing costs are so high.
“With mortgage rates remaining near their 20-year high in recent weeks, homeowners are hesitant to list their properties,” Jiayi Xu, economist at Realtor.com said.
Mortgage rates kept climbing for the fifth consecutive week, bringing average year-over-year rates 60 basis points higher.
Freddie Mac‘s Primary Mortgage Market Survey, which focuses on conventional and conforming loans with a 20% down payment, shows the 30-year, fixed-rate mortgage averaged 7.57% as of Oct. 12. That’s up 8 basis points from 7.49% the previous week.
By contrast, the 30-year, fixed-rate mortgage was at 6.92% a year ago at this time.
“For the fifth consecutive week, mortgage rates rose as ongoing market and geopolitical uncertainty continues to increase,” Sam Khater, Freddie Mac’s chief economist said in a press release. “The good news is that the economy and incomes continue to grow at a solid pace, but the housing market remains fraught with significant affordability constraints. As a result, purchase demand remains at a three-decade low.”
On Thursday, the Consumer Price Index report showed steady inflation in September, with increases in shelter costs.
Other indices showed significantly higher home loan rates this week.
HousingWire’s Mortgage Rates Center showed Optimal Blue’s average 30-year fixed rate for conventional loans at 7.52% on Wednesday, compared to 7.60% the previous week. At Mortgage News Daily on Wednesday, the 30-year fixed rate for conventional loans was 7.60%, up from 7.70% the previous week.
Last week’s stubbornly strong jobs report surprised investors, resulting in a surge in the 10-year Treasury yield and home loan rates, Hannah Jones, senior economic research analyst at Realtor.com, said in a news release.
On Thursday, the benchmark 10-year Treasury yield was at 4.6%, down from 4.8% earlier in October. Amid geopolitical uncertainty, investors took refuge in bonds, Jones noted.
Additionally, higher mortgage rates are also a result of the Federal Reserve‘s reduced holdings of mortgage-backed securities, Bright MLS Chief Economist Lisa Sturtevant said in a news statement. The Fed’s selloff of MBSs has increased the supply of mortgage bonds in the market, driving those bond yields higher.