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Student loan interest rates change on a regular basis and are determined by different factors. You may have student loans taken out in different years and/or from various lenders — each with a different interest rate. But why? Who makes these decisions and when were they made? Here’s an in-depth look at what goes into the determination of student loan interest rates.
Federal student aid programs are enacted and authorized by Congress. There have been a few different programs over the years, aimed at students with various financial needs and educational goals:
• The first such program was the GI Bill, implemented in 1944 to assist veterans who had served during wartime. The idea behind the GI Bill was that the veterans needed a chance to catch up to their peers who did not have their lives interrupted by military service and had been able to go to college.
• In 1958, spurred on by the Soviet launch of Sputnik, Congress enacted the National Defense Education Act (NDEA), which provided financial aid to students in certain fields of study. The NDEA provided low-cost loans for undergraduate students, with the opportunity for debt cancellation for students who became teachers after graduation. It also established graduate fellowships for students studying in fields with national security relevance, such as science, mathematics, and engineering. Scholarships or grants that were outright need-based were not included in the NDEA, however.
• The first sweeping legislation to offer educational financial aid came in the form of the Higher Education Act (HEA) of 1965. Title IV of the HEA focused on the needs of students who did not have the financial means to afford a college education, with the introduction of Educational Opportunity Grants. This section of the act also introduced College Work-Study and the Guaranteed Student Loan (GSL) program.
Congress has enacted comprehensive reauthorization of the HEA eight times during successive presidential administrations. The HEA and student financial aid programs that today’s system is centered around came about with the 1972 reauthorization of the act. Changes included:
• Financial support to students in programs other than four-year baccalaureate programs: career and vocational programs, community colleges, and trade schools, as well as to students in part-time programs.
• Educational Opportunity Grants, College Work-Study, and the GSL program were replaced by Basic Grants (renamed Pell Grants in 1978).
• State Student Incentive Grants, which provided federal matching funds to states that enacted or expanded their own need-based programs, were introduced.
• Sallie Mae (“Student Loan Marketing Association”) was established to administer funds in the GSL program.
Later reauthorizations of the HEA saw further changes to student financial aid programs. Some of these changes included:
• Expansion of student financial aid to the middle class.
• Widening eligibility for Pell Grants.
• Availability of subsidized guaranteed loans to students regardless of income or financial need.
• Introduction of an unsubsidized federal student loan option that doesn’t take financial need into account at all.
• Increasing the borrowing limits for federal student loans.
All of those various pieces of legislation introduced the concept of financial aid and programs that administered them. Some components of student financial aid, such as scholarships and grants, typically don’t have to be repaid, but student loans do have to be repaid — with interest.
After a three-year pause, interest accrual on federal student loans will resume on Sept. 1, 2023, and payments will be due starting in October 2023.
There are a lot of moving pieces in the puzzle that is higher education funding. And affording a college education can be quite puzzling to students and parents. If you’re considering applying for a federal or private student loan, there are a few main factors to learn about that might help you make a decision:
One of the main factors affecting federal student loans in general and their interest rates is legislation. Rates set by private lenders are not governed by legislation.
Until 1979, banks’ rate of return for GSLs was capped by the rate set by a group of government officials. But that year, Congress passed an amendment to the HEA that assured banks a favorable rate of return on GSLs by tying their subsidies directly to changes in Treasury bill rates. Before this amendment, federal grants and work-study made up about 50% of student financial aid and federal student loans made up about 25%.
During the 1980s and 1990s, student loan volume skyrocketed and those percentages essentially flip-flopped — loans made up about 60% of student aid, and grants and work-study made up only about 35%. But the low Treasury rates of the 1960s and early 1970s, which the banks’ subsidies had been based on, rose dramatically from the late 1970s though the mid-1980s, and didn’t return to the early-1970s rates until 1992, and they didn’t stay there for long.
The Student Loan Reform Act of 1993 was introduced to address the problems student loan borrowers were having repaying those debts. The Act implemented flexible repayment plans and began phasing in the Federal Direct Student Loan program, which still exists today, to replace previous loan programs.
Prior to 2006, federal student loan interest rates were variable, based on the 91-day Treasury bill rate plus varying percentage rates depending on the type of loan, and were capped at 8.25% for Stafford Subsidized and Unsubsidized Loans, and 9% for PLUS Loans.
From 2006 to 2012, rates were fixed at 6.8% for Stafford Subsidized and Unsubsidized Loans, and 7.9% for Direct PLUS loans for graduate students and parents. During this time range, subsidized Stafford Loan interest rates were reduced incrementally based on the distribution date.
The 2013 passage of the Student Loan Certainty Act changed the way interest rates on federal student loans were calculated. This Act established the interest rate calculation as based on the 10-year Treasury bill rate. New rates are set every year on July 1, and are applied to loans disbursed from July 1 through June 30 of the following year. In other words, as prevailing interest rates change from year to year, rates on newly disbursed Direct Loans do, too.
How Does This Affect Your Rates?
If you are a federal student loan borrower, your loan’s interest rate was set according to the calculation used when it was disbursed. Consolidation can be an option for some borrowers with multiple loans that have different interest rates. Any loans that have variable rates can be switched to a fixed interest rate through consolidation. There are pros and cons to consolidating loans, though, so it’s important to consider your financial situation before deciding if it’s the right option for you.
The kind of student loan you have dictates the interest rate you’ll be charged.
• For current undergraduate borrowers , there are two types of federal student loans available:
◦ Direct Subsidized Loans for student borrowers with financial need.
◦ Direct Unsubsidized Loans, which don’t have a financial need requirement.
◦ The applicant’s credit history is not a consideration for either of these types of loans.
• Current graduate and professional borrowers also have two federal student loan options:
◦ Direct Unsubsidized Loans, which don’t have a financial need requirement.
◦ Direct PLUS Loans , which are commonly referred to as Grad PLUS Loans when taken out by graduate students.
▪ Federal Direct PLUS Loans do require a credit check to determine eligibility, but this does not affect the interest rate, as it is fixed by federal law.
• Parents of dependent, undergraduate students have the option of borrowing under the federal Direct PLUS Loan Program.
◦ Commonly referred to as Parent PLUS Loans when taken out by parents, a credit check is required for qualification, but since the interest rate is fixed by federal law, the applicant’s credit history does not affect the interest rate.
For the 2023-2024 school year, the interest rate on Direct Subsidized or Unsubsidized loans for undergraduates is 5.50%, the rate on Direct Unsubsidized loans for graduate and professional students is 7.05%, and the rate on Direct PLUS loans for graduate students, professional students, and parents is 8.05%. The interest rates on federal student loans are fixed and are set annually by Congress.
Private student loans may be another option for some borrowers. After exhausting all federal student loan options, seeking out scholarships and grants, and using as much accumulated savings as you feel comfortable using, a private student loan can help fill in any gaps in educational funding that might be left. Here are some details about private student loans that might help you as you consider financial options:
• Private student loans are administered by the lender, not the federal government.
• The borrower’s credit score and credit history will be used to determine the interest rate they might qualify for.
• Recent high school graduates may not be able to qualify on their own, so might need a cosigner.
• Interest rates can be higher with private student loans than federal student loans.
A borrower might end up with a combination of several types of loans to repay and want to make that repayment as simple and financially feasible as possible. Federal student loans come with consolidation options and repayment plans that aren’t generally offered by private lenders. If there is a need to reduce your monthly student loan payment on federal student loans, it’s best to try all federal options — forbearance, deferment, or income-driven repayment (IDR) — before looking at student loan refinancing options with a private lender.
The White House in June 2023 announced a new IDR Plan — the Saving on a Valuable Education (SAVE) Plan — that replaces the existing Revised Pay As You Earn (REPAYE) Plan. Borrowers with undergraduate loans may see their monthly payments cut in half under the SAVE Plan, and some borrowers may qualify for $0 monthly payments based on income, according to the White House.
How Does This Affect Your Rates?
Federal student loan interest rates are fixed by federal law, so your rate will only be affected by the date of disbursement. If you have more than one federal student loan, you will likely have different interest rates on each of them.
Private student loan interest rates are set by the lender. Some private lenders will offer the choice of a variable- or fixed-rate loan. A variable rate loan usually offers a lower initial interest rate than a fixed-rate student loan, but because the rate can fluctuate over time, it also presents a greater risk. If interest rates go up, so do your interest payments. A fixed rate loan’s interest will be the same amount each month, which can make it easier to budget.
The choices and decisions you feel comfortable making will affect how much you pay for a student loan.
Opting for a federal student loan means your interest rate will be fixed for the term of the loan. Your personal credit history does not have an effect on the interest rate.
Opting for a private loan means your credit history will be taken into account when determining eligibility and the interest rate offered. This means that financial decisions you’ve made in the past may determine how much you pay for your student loan in the future.
Auto-pay is an option that may reduce your student loan interest rate by a certain percentage. Federal loans offer this option, and some private lenders do, too. Check with your loan servicer to ask about auto-pay options.
If college graduation is but a fond memory, and your credit history is better established and more positive than it may have been in the past, you might consider negotiating your private student loan interest rate. There is no guarantee that the lender will agree to a lower rate, but it’s worth asking.
How Does This Impact Your Rates?
The bottom line with this factor is that you can choose the option that you think works best for your financial situation and personal comfort level. If you want the fixed-rate steadiness and other benefits that a federal student loan comes with, then choosing that may be right for you. If you’re comfortable with the potential of an interest rate increase with a variable-rate private student loan, then this is another option you may choose.
For first-time borrowers, federal student loans can be the way to go — after all, most undergrads haven’t had time to build up a history of responsibly (or irresponsibly) using credit. However, graduate and professional school borrowers, or nontraditional student borrowers with clear financial pictures, may have more options than the one-size-fits-all approach. Remember, private student loans may not have the same protections and benefits that come with federal student loans and usually are not considered until all other financial aid options have been exhausted.
If a student loan fits your financial needs, consider looking at private student loan online options offered by SoFi. With undergraduate, graduate, professional, and parent student loans, SoFi Private Student Loans can be used at any point in a student’s college career. Borrowers pay no fees and have flexible repayment options.
See if there’s a SoFi Private Student Loan option that works for you.
SoFi Private Student Loans
Please borrow responsibly. SoFi Private Student Loans are not a substitute for federal loans, grants, and work-study programs. You should exhaust all your federal student aid options before you consider any private loans, including ours. Read our FAQs.
SoFi Private Student Loans are subject to program terms and restrictions, and applicants must meet SoFi’s eligibility and underwriting requirements. See SoFi.com/eligibility-criteria for more information. To view payment examples, click here. SoFi reserves the right to modify eligibility criteria at any time. This information is subject to change.
SoFi Student Loan Refinance
NOTICE: The debt ceiling legislation passed on June 2, 2023, codifies into law that federal student loan borrowers will be reentering repayment. The US Department of Education or your student loan servicer, or lender if you have FFEL loans, will notify you directly when your payments will resume For more information, please go to https://docs.house.gov/billsthisweek/20230529/BILLS-118hrPIH-fiscalresponsibility.pdf https://studentaid.gov/announcements-events/covid-19
If you are a federal student loan borrower you should take time now to prepare for your payments to restart, including the opportunity to refinance your student loan debt at a lower APR or to extend your term to achieve a lower monthly payment. Please note that once you refinance federal student loans you will no longer be eligible for current or future flexible payment options available to federal loan borrowers, including but not limited to income based repayment plans or extended repayment plans.
SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.
External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .
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Source: sofi.com
Current federal student loan rates for school year 2023-24 are a bit higher than rates for the prior school year 2022-23 (e.g., 8.05% vs. 7.54% for Direct PLUS loans for graduate or professional students or parents of undergraduate students), and quite a bit higher than for school year 2020-21 (e.g., 8.05% vs. 5.30% for Direct PLUS loans for graduate or professional students or parents of undergraduate students).
The reason current federal student loan interest rates are higher this year is because rates are determined by the high yield of the 10-year Treasury note last auctioned in May, and it was higher this past May than it was the prior May – and in May 2020, when businesses were in lockdown due to Covid-19. (Generally, the yield goes up when investors are optimistic about the future.)
Read on for more about how federal student loan interest rates are determined, how they have varied over the years, and when they can be higher than private lender rates.
Federal student loan interest rates for the current school 2023-24 are higher than last year. In fact, the rate for Direct Subsidized loans for undergraduates (5.50%) is higher than it’s been since the 2009-2010 school year, when the rate was 5.60%.
For federal student loans disbursed on or after July 1, 2023 and before July 2, 2024, the rates are:
• 5.50% for Direct Subsidized and Unsubsidized loans for undergraduates,
• 7.05% for Direct Unsubsidized loans for graduate or professional students, and
• 8.05% for Direct PLUS loans for graduate or professional students or parents of undergraduate students.
For the prior school year 2022 – 2023, the federal rates were:
• 4.99% for Direct Subsidized and Unsubsidized loans for undergraduates, ,
• 6.54% for Direct Unsubsidized loans for graduate or professional students, and
• 7.54% for Direct PLUS loans for graduate or professional students or parents of undergraduate students.
For school year 2020 – 2021, when rates were at a historic low, the federal rates were:
• 2.75% for Direct Subsidized and Unsubsidized loans for undergraduates,
• 4.30% for Direct Unsubsidized loans for graduate or professional students, and
• 5.30% for Direct PLUS loans for graduate or professional students or parents of undergraduate students.
Recommended: What’s the Average Student Loan Interest Rate?
The reason that federal student loan interest rates fluctuates has to do with how and when federal student loan rates are set. By federal statute, they are determined once a year and are based on the high yield of the 10-year Treasury note last auctioned in May (for the upcoming school year).
That yield (3.448% in May 2023) is then added to a required percentage (4.60% for Direct PLUS loans for graduate or professional students or parents of undergraduate students) to get the federal interest loan rate for loans disbursed on or after July of that year (8.05%).
So in May 2020, when businesses were in lockdown due to Covid-19, the high yield of the 10-year Treasury note was less than 1%. In May 2022, as the Federal Reserve began to try to curb inflation by raising its rate, the high yield or index rate on the 10-year Treasury note was 2.94%, and in May 2023, as the economy was looking up in terms of inflation, the index rate was 3.448%.
💡 Quick Tip: Need a private student loan to cover your school bills? Because approval for a private student loan is based on creditworthiness, a cosigner may help a student get loan approval and a lower rate.
The required percentage added to the high yield of the 10-year Treasury note last auctioned in May depends on the type of loan and borrower. The added percentages follow this schedule:
• For Direct Subsidized and Unsubsidized loans for undergraduate students, the added percentage is 2.05%.
• For Direct Unsubsidized loans for graduate and professional students, the added percentage is 3.60%.
• For Direct PLUS loans for parents of undergraduate students and for graduate or professional students, the added percentage is 4.60%.
The federal student loan program began in the 1960s. Over time, the way rates are set has changed due to legislative action. Here’s a general timeline of how federal student loan interest loans have been set:
Originally, Congress set the interest rates for student loans. The rates were fixed and ranged from 6% in the beginning to 10% for the years 1988 to 1992.
Congress amended the law so that rates were variable rather than fixed and reset annually. The formula for federal student loan interest rates was the interest rate on short-term Treasury securities at a set time plus 3.1%. The rate was capped at 9.0%. Over the next six years, Congress lowered the added percentage and the cap.
Soon after switching to variable rates, Congress passed the Student Loan Reform Act, which authorized the Direct Loan program. The law changed the formula for calculating interest rates so that they were pegged to 10-year Treasurys, which aligned with the term or length of student loans. The markup was lowered to 1.0%, and the new formula was to be used starting in five years.
But in 1998, because the Direct Loan program was taking longer than expected to replace the old loan program, where banks provided the loans instead of the government, Congress postponed when the new formula would be used until 2003. In the meantime, the old formula was used but with a 2.3% add-on (instead of 3.1%).
Several bills have been passed trying to make student loans more affordable, including a bill that fixed the rate at 6.8% starting in 2006. For Direct Unsubsidized loans for undergraduate students and Direct Unsubsidized loans for graduate and professional students, the federal student loan interest rate stayed at 6.8% through 2013.
In 2013, a law enacted the current formula used to calculate federal student loan interest rates.
Of course, private student loan rates will fluctuate with market trends and from lender to lender. That said, private student loan rates for 10-year loans are generally higher than the federal interest rate when you are comparing rates concurrently on offer.
However, this isn’t always the case when it comes to student loans for parents or graduate/professional students. For the 2023-24 school year, the interest rate on Direct PLUS loans is 8.05%. But in July 2023, some private student loan rates are actually lower. For example, SoFi’s variable rates for graduate or professional students start at 6.32% and its fixed rates start at 6.5%.
Also, private student loan rates (and refinance rates) can be lower for a loan that has a shorter term length than the standard 10 years of federal loans.
What’s more, private student loan rates and (student loan refinance rates) that are currently on offer can very well be lower than the federal interest rate you received at the time of getting your loan.
💡 Quick Tip: It’s a good idea to understand the pros and cons of private student loans and federal student loans before committing to them.
As mentioned earlier, private lenders will look at your creditworthiness when determining your interest rate. This involves considering such factors as:
• Credit History – When entering college, most students have little to no credit history. That means the lender could be unsure of their ability to repay the loan since students don’t typically have a history of paying any loans. This can lead to a higher interest rate.
• Your School – Most four-year schools are eligible for private loans, but some two-year colleges aren’t. Additionally, applicants typically have to be enrolled at least half-time to qualify for private student loans.
• Your Cosigner’s Finances – Since many private student loan applicants are relatively new to debt and have no credit history, they might be required to provide a cosigner. A cosigner shares the burden of debt with you, meaning they’re also on the hook to pay it back if you can’t. A cosigner with a strong credit history can potentially help secure a lower interest rate on private student loans.
Federal student loan interest rates have fluctuated over the years. Currently, they are higher for 2023-24 than they were for 2022-23.
Typically, federal interest rates are lower than private student loans rates offered in the same year. But they can also be higher, particularly for parents borrowing to pay their children’s tuition and for graduate or professional students.
Also, private student loan rates (and refinance rates) on offer at the present time can be lower than federal interest rates from previous years or they can be lower on loans for term lengths shorter than the standard 10 years.
If you’ve exhausted all federal student aid options, no-fee private student loans from SoFi can help you pay for school. The online application process is easy, and you can see rates and terms in just minutes. Repayment plans are flexible, so you can find an option that works for your financial plan and budget.
Cover up to 100% of school-certified costs including tuition, books, supplies, room and board, and transportation with a private student loan from SoFi.
SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.
SoFi Private Student Loans
Please borrow responsibly. SoFi Private Student Loans are not a substitute for federal loans, grants, and work-study programs. You should exhaust all your federal student aid options before you consider any private loans, including ours. Read our FAQs.
SoFi Private Student Loans are subject to program terms and restrictions, and applicants must meet SoFi’s eligibility and underwriting requirements. See SoFi.com/eligibility-criteria for more information. To view payment examples, click here. SoFi reserves the right to modify eligibility criteria at any time. This information is subject to change.
SoFi Student Loan Refinance
NOTICE: The debt ceiling legislation passed on June 2, 2023, codifies into law that federal student loan borrowers will be reentering repayment. The US Department of Education or your student loan servicer, or lender if you have FFEL loans, will notify you directly when your payments will resume For more information, please go to https://docs.house.gov/billsthisweek/20230529/BILLS-118hrPIH-fiscalresponsibility.pdf https://studentaid.gov/announcements-events/covid-19
If you are a federal student loan borrower you should take time now to prepare for your payments to restart, including the opportunity to refinance your student loan debt at a lower APR or to extend your term to achieve a lower monthly payment. Please note that once you refinance federal student loans you will no longer be eligible for current or future flexible payment options available to federal loan borrowers, including but not limited to income based repayment plans or extended repayment plans.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
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Source: sofi.com
In the wake of the Supreme Court’s decision to block the White House program for federal student loan forgiveness, President Joe Biden announced the SAVE Plan, a new income-driven plan for federal loan repayment. It is part of his effort to make student loan debt more manageable especially for low-income borrowers, and it replaces the REPAYE program.
Here’s what borrowers need to know about the Saving on a Valuable Education (SAVE) Plan, who qualifies, and the most important deadlines.
On June 30, President Biden said he had created a new repayment plan, “so no one with an undergraduate loan has to pay more than 5 percent of their discretionary income.”
The SAVE Plan is the most affordable repayment plan for federal student loans yet, according to the Department of Education. Borrowers who are single and make less than $32,800 a year won’t have to make any payments at all. (If you are a family of four and make less than $67,500 annually, you also won’t have to make payments.)
For federal borrowers who are required to make payments (this depends on your income and family size) and have only undergraduate school loans, the monthly payments will be cut in half — from 10% of discretionary income to 5%. How long people will have to make payments depends on their loan balance.
• If their original undergraduate loan balance is $12,000 or less, they will need to make payments for 10 years – and after that, any remaining balance will be forgiven.
• If their original undergraduate loan balance is more than $12,000, their payment period is capped at 20 years (the term goes up one year for every $1,000 above $12,000) — and any remaining balance will be forgiven.
For federal borrowers who have both undergraduate and graduate loans, their monthly payments will be a weighted average of 5% and 10% of their discretionary income. How long they will need to make payments is pending government guidance.
And for federal borrowers who have only graduate school loans, their monthly payments will be 10% of their discretionary income. After 25 years of payments, any remaining balance will be forgiven.
Recommended: Discretionary Income and Student Loans, and Why It Matters
The SAVE Plan is replacing the Revised Pay As You Earn Repayment Plan (REPAYE). It is an improvement on it in several ways:
• The SAVE Plan allows for low-income borrowers to make no payments at all.
• The SAVE Plan requires low-balance borrowers ($12,000 or less) to make payments for only 10 years.
• The SAVE Plan requires borrowers with only undergraduate debt to pay 5% (instead of 10%) of their discretionary income.
Additionally, if the required payment based on your income does not cover all of the interest that accrues every month, the uncovered amount will not be added to your balance. In other words, your balance will not grow if you are making your payments.
Recommended: Supreme Court Blocks Student Loan Forgiveness, Biden Vows More Action
Whether you will owe monthly federal loan payments under the SAVE Plan depends on two factors: your income* and your family size. Your payment will be zero if your income is at or under 225% of the Federal Poverty Level (FPL)**.
To find out if you will be one of the estimated million borrowers who still won’t have monthly payments to make after the federal payment pause ends, look up your family size in the table below. If your income* is equal to or below the corresponding “2023 Income Level Protected From Payment Under SAVE,”** your monthly federal student loan payment will be $0.
*Normally, the government uses adjusted gross income figures, but the DOE did not specify this in its factsheet .
**Usually the government uses the prior year’s FPL and your prior year’s income, but the DOE used 2023 figures in its factsheet.
2023 Income Levels Protected From Payment Under SAVE by Family Size |
||
---|---|---|
Family Size | 2023 Incomes at Federal Poverty Level (FPL) | 2023 Income Level Protected From Payment Under SAVE (FPL x 225%) |
For individuals | $14,580 | $32,805 |
For a family of 2 | $19,720 | $44,370 |
For a family of 3 | $24,860 | $55,935 |
For a family of 4 | $30,000 | $67,500 |
For a family of 5 | $35,140 | $79,065 |
For a family of 6 | $40,280 | $90,630 |
For a family of 7 | $45,420 | $192,195 |
For a family of 8 | $50,560 | $113,760 |
For a family of 9+ | Add $5,140 for each extra person | $125,325+ |
To calculate how much your monthly federal payments could be starting in October 2023 under SAVE, look up your family size in the table above and see the corresponding protected income level**. Subtract that dollar amount from your estimated 2023 income* and multiply it by 10%. Then take that figure and divide it by 12 to get your monthly payment amount.
(2023 Income* – 2023 Protected Income Level**) x 10% ÷ 12 = Monthly Federal Loan Payment Under SAVE
*Normally, the government uses adjusted gross income figures, but the DOE did not specify this in its factsheet.
**Usually the government uses the prior year’s FPL and your prior year’s income, but the DOE used 2023 figures in its factsheet.
While the SAVE Plan will replace REPAYE by the time payments are due in October, SAVE will not fully take effect until July 1, 2024.
This means that borrowers who are eligible to have their payments cut to 5% of their discretionary income won’t see the reduction until summer next year.
But the DOE is increasing the amount of income that is protected from payments, so that single borrowers who make up to $32,800 will not have to make payments and borrowers in a family of four making less than $67,500 also won’t have payments due.
Also, starting in October, federal borrowers whose required payments don’t cover all of the interest that accrues every month will not owe the uncovered interest amount.
The SAVE Plan is available to federal student borrowers with Direct student loans. This includes:
• Direct Subsidized Loans
• Direct Unsubsidized Loans
• Direct PLUS Loans made to graduate or professional students
• Direct Consolidation Loans that did not repay any PLUS loans made to parents
Additionally, you are eligible for the SAVE Plan if you consolidated a loan from the Federal Family Education Loan (FFEL) Program, including Subsidized and Unsubsidized Federal Stafford Loans, FFEL Plus Loans for graduate or professional study, FFEL Consolidated Loans that did not repay parents’ PLUS loans, and Federal Perkins Loans.
The SAVE Plan is not available for private student loans or parent PLUS loans. Also, borrowers must be in good standing with their student loan payments. Borrowers in default who provide income information that shows they would have had a $0 payment at the time of default will be automatically moved to good standing, allowing them to access the SAVE plan
Borrowers who are already enrolled in the REPAYE program will be automatically enrolled in the SAVE Plan. During the transition, the DOE says it will use the two plan names, SAVE and REPAYE, interchangeably.
Those who are not currently in the REPAYE program can apply now (this summer), and they will be switched to SAVE automatically.
In addition to the SAVE program, President Biden announced that the DOE is instituting a 12-month “on-ramp” to repayment, running from October 1, 2023 to September 30, 2024, so that financially vulnerable borrowers who miss monthly payments during this period are not considered delinquent, reported to credit bureaus, placed in default, or referred to debt collection agencies.
Moreover, the Public Service Loan Forgiveness Program exists to help professionals working in public service who are struggling to repay federal student loans.
Though the new SAVE Plan for federal student loan borrowers won’t take full effect until July 2024, some benefits will be implemented by October this year, when payments will be due again. Namely, low-income borrowers may be exempt from making payments, while loan balances will not grow for borrowers making payments even if their required payment amount doesn’t cover all of the interest that accrues every month.
Next summer, in July 2024, eligible federal borrowers with only undergraduate debt will see their monthly payments cut at least in half.
This article will be updated as the DOE releases more information about SAVE. To find more details yourself, this StudentAid page is a good place to start.
Photo credit: iStock/Pekic
SoFi Student Loan Refinance
NOTICE: The debt ceiling legislation passed on June 2, 2023, codifies into law that federal student loan borrowers will be reentering repayment. The US Department of Education or your student loan servicer, or lender if you have FFEL loans, will notify you directly when your payments will resume For more information, please go to https://docs.house.gov/billsthisweek/20230529/BILLS-118hrPIH-fiscalresponsibility.pdf https://studentaid.gov/announcements-events/covid-19
If you are a federal student loan borrower you should take time now to prepare for your payments to restart, including the opportunity to refinance your student loan debt at a lower APR or to extend your term to achieve a lower monthly payment. Please note that once you refinance federal student loans you will no longer be eligible for current or future flexible payment options available to federal loan borrowers, including but not limited to income based repayment plans or extended repayment plans.
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Source: sofi.com
The Federal Reserve concluded its June meeting by pausing its strategy it started in 2022.
The central bank decided to not hike its federal funds rate for the first time in over a year. Instead, it’s taking a wait-and-see approach in order to see if inflation keeps descending and the overall economy cools in the face of job market resiliency.
“With this muddled picture, it is not surprising that the Federal Open Market Committee (FOMC) held rates steady at its June meeting – but kept their options open for July and later this year,” said Mortgage Bankers Association Chief Economist Mike Fratantoni.
The Fed doesn’t set mortgage interest rates. Mortgage rates hinge on several factors, but they do intrinsically correlate with the central bank’s policy actions.
After 10 consecutive hikes, the FOMC concluded its June 14 meeting by holding the federal funds rate target range static. The committee will instead “assess additional information and its implications for monetary policy” to bring inflation down to the 2% goal, according to its press release.
The national inflation rate gradually decreased for 10 straight months, from June 2022’s 41-year high of 9.1% to 4% in May 2023, according to the U.S. Bureau of Labor Statistics. Ahead of June’s meeting, Fed Governor Philip Jefferson said skipping a rate hike “would allow the committee to see more data before making decisions about the extent of additional policy firming.”
While only time will determine the Fed’s next moves, its median forecast showed two more rate hikes in 2023. Of course, the FOMC is prepared to make adjustments based on economic conditions and developments.
Fratantoni predicts the Fed will forego making more hikes this year.
“The threat of further hikes, baked in to medium-term rates today, will only further slow economic activity,” Fratantoni continued. “We expect that mortgage rates will drift down over the second half of the year as the economy slows and the Fed reacts accordingly by holding off on further rate hikes.”
The FOMC’s goal is to keep the long-term average annual rate of inflation near 2% and the next meeting comes on July 25-26.
With debt ceiling negotiations creating uncertainty, interest rate movement mostly trended upwards since May’s FOMC meeting.
Since settling at 6.39% on May 4, the average 30-year fixed-rate mortgage (FRM) climbed to 6.71% on June 8, according to Freddie Mac.
Interest rates typically rise alongside increases to the fed funds rate and run off of balance sheet holdings. With this relatively small — and potentially 2023’s final — hike, mortgage rates could decline amongst the financial market uncertainty.
We’ve seen mixed results in the immediate aftermath for this series of rate hikes. Most recently, the average 30-year FRM decreased 18 basis points (0.18%) and four basis points (0.04%), respectively, the day after the hikes on March 22 and May 4.
The FOMC’s latest action signals a downtrend for inflation and likely the economy.
In turn, interest rates are expected to gradually fall over the remainder of the year. However, mortgage rate movements are highly volatile and depend on a multitude of factors. Trying to time the market typically isn’t financially prudent, but the sooner you lock in a mortgage, the sooner you start building home equity (and personal wealth).
If you’re ready to become a homeowner, reach out to a mortgage professional to see what rate and loan type you qualify for.
Source: themortgagereports.com
US mortgage rates jumped higher last week as uncertainty about the debt ceiling standoff sent bond yields rising.
The 30-year fixed-rate mortgage averaged 6.79% in the week ending June 1, up from 6.57% the week before, according to data from Freddie Mac released Thursday. Rates jumped higher last week for the third week in a row. A year ago, the 30-year fixed-rate was 5.09%.
Mortgage rates tend to be pegged to US Treasury yields, which had been heading higher as America grows ever closer to default. A deal to raise the debt ceiling and avoid default is moving forward after a bill to suspend the nation’s debt limit through January 2025 overwhelmingly passed in the House.
A little over a year ago mortgage rates topped 5% for the first time since 2011 and have remained over 5% for all but one week during the past year. Since then they have gone as high as 7.08%, last reached in November. Since mid-March, rates have gone up and down but have stayed under 6.5%. Until a week ago when they tipped over 6.5%.
In addition, data shows the economy is strong, resurfacing concerns about inflation remaining too high and raising the prospect of another rate hike at the Federal Reserve’s June meeting. Although the Fed doesn’t have direct control over mortgage rates, higher interest rates tend to push bond yields higher, which also can nudge mortgage rates up.
“Mortgage rates jumped this week as a buoyant economy has prompted the market to price-in the likelihood of another Federal Reserve rate hike,” said Sam Khater, Freddie Mac’s chief economist. “Although there has been a steady flow of purchase demand around rates in the low to mid six percent range, that demand is likely to weaken as rates approach seven percent.”
The rate for a 30-year mortgage climbed this week as the debt ceiling standoff remained uncertain for much of this week.
“The fear of debt default affects mortgage rates through government-backed bonds,” said Jiayi Xu, and economist at Realtor.com. “If the U.S. defaults on its debt, bond investments become riskier, resulting in increased yields and potentially higher mortgage rates. With a debt deal pending, the likelihood of default remains very low.”
Once the deal is signed by President Joe Biden, the U.S. government is expected to quickly increase issuance of Treasury bills, said Xu. This, “has the potential to cause short-term liquidity challenges at banks, as businesses and households may reallocate their funds towards higher-yielding and relatively safer government debt.”
“In order to keep attracting depositors, banks might be compelled to raise interest rates, thereby squeezing profit margins,” she said. “This could lead to further rate increases across various loan products offered by banks, including both business loans and personal loans.”
However, the debt ceiling standoff isn’t the only thing troubling the markets or the economy.
Economic data this week highlight continued strength in the economy, said George Ratiu, chief economist at Keeping Current Matters.
The number of job openings rose in April to 10.1 million, exceeding market expectations and 3.8 million employees left their jobs during the month, with many finding better opportunities.
“Markets are keeping a close eye on Friday’s payroll employment report, looking for additional cues about the labor landscape,” Ratiu said. “The data are expected to inform the Federal Reserve’s rate decision at the June meeting.”
Fewer homes to buy and higher interest rates are making for a cooler spring market than typical.
Mortgage applications declined for the third straight week, as higher rates, ongoing economic uncertainty, and declining affordability continue to dampen borrower demand, according to the Mortgage Bankers Association.
“The lack of homes for sale remains a headwind for the housing market this year, leading to elevated home prices and households deciding to delay buying a home,” said Bob Broeksmit, MBA president and CEO.
But if mortgage rates remain elevated, sellers looking to wrap up a move during the summer months may be motivated to cut prices.
“We may see a potential decrease in asking prices during the upcoming summer season,” said Xu.
While a decline in home prices would be welcome to first time home buyers who lack existing equity to leverage, said Xu, it could potentially erode some of the equity of current homeowners and pose risks to the financial system.
“However, thanks to today’s near-record high home equity levels, even in the event of a substantial 10% decline in home values from their level at the end of the fourth quarter, whether occurring suddenly or over two years with a climbing mortgage debt – this is an incredibly unlikely scenario,” Xu said. “Home equity as a share of total real estate value would still exceed 60%, offering a significant cushion for existing homeowners in aggregate.”
Source: cnn.com
Typically, it does not cost the borrower money to refinance student loans. Most lenders do not charge origination fees or application fees. However, you can end up paying fees if you don’t make your payments on time.
In the right circumstances, refinancing your student loans can help you save both time and money as you work to pay down your student debt, without costing you any money to do so.
Student loan refinancing is the process of paying off one or more existing student loans with one new one through a private lender. You can typically refinance both federal and private student loans, and depending on the terms of your current loans and your creditworthiness, you may be able to get a lower interest rate or lower monthly payment.
This process is different from federal student loan consolidation, which involves combining several eligible federal loans into one new loan with a federal loan servicer. While that process can simplify your repayment plan and help you maintain federal loan protections, it typically doesn’t help you save money.
Every situation is different, but with the right refinance loan, you could save hundreds or even thousands of dollars as you pay down your student debt.
That said, there are both benefits and drawbacks to consider before you pull the trigger.
If you qualify for a lower interest rate than what you’re currently paying, refinancing your student loans could save you money on interest over the life of the loan. Keep in mind that this includes keeping the loan term the same. If you extend your loan term, you could end up paying more in interest, even with a lower rate.
If you don’t qualify for a lower rate on your own, you may be able to add a cosigner with solid creditworthiness to help improve your chances.
Student loan refinance lenders typically offer a range of repayment terms, allowing you to shorten or lengthen the amount of time you have to pay off your debt.
If you have multiple student loans across more than one servicer or lender, refinancing them all into one new loan can make repayment a little easier.
If you have federal student loans, refinancing with a private lender will cause you to lose certain benefits and protections, such as access to income-driven repayment plans, federal loan forgiveness programs, and more.
If your current interest rates are already low, it may be tough to qualify for something even lower. Also, applying for a longer repayment period than what you already have could end up costing you more in interest over the life of the loan.
Federal student loans allow you to apply for student loan deferment or forbearance if you’re struggling to make your payments. When you refinance with a private lender, you may not get these same benefits.
Deferment and forbearance options can vary by private lenders. With SoFi, for instance, you may qualify for a deferment if you return to graduate school on a half-time or full-time basis, undergo disability rehabilitation, or serve on active duty in the military.
Refinancing student loans with a private lender typically does not come with any costs to the borrower. Most companies do not charge any fees associated with student loan refinancing. If you are being charged fees (see below), you may want to look elsewhere for your refinance.
If a lender does charge fees for refinancing, these are some you may run into:
• Application fee: This fee covers the cost of processing the application and is typically due when you submit your application.
• Origination fee: Some lenders charge this fee to help cover the costs of processing your loan and disbursing the funds.
• Late payment fee: Many lenders charge this fee if you miss a payment. Depending on the lender, you may get a grace period between your due date and when the fee is assessed.
• Returned payment fee: If you try to make a payment but don’t have enough money in your checking account to cover it and no overdraft protection, some lenders may charge you a fee for the failed transaction.
In most cases, you won’t have to pay anything up front to refinance your student loans. With SoFi, there are no application fees, no origination fees, no late fees, and no prepayment penalties.
As you’re shopping around, make sure you read the fine print to understand the cost of refinancing student loans with that particular lender.
Because many student loan refinance lenders don’t charge upfront fees, shopping around with those costs in mind can help you improve your chances of finding a low- or no-costs lender.
Keep in mind, though, that some lenders may charge what are called “hidden fees.”
Instead of showing up in marketing material, these fees are often buried deep in the terms and conditions of the loan and can be tough to find if you’re not looking for them.
Taking the time to thoroughly read the terms and conditions before refinancing could help you avoid unexpected fees down the line.
If you get approved for the new loan, you might consider setting up automatic payments to help avoid missing a payment and getting charged a late fee. Some lenders, including SoFi, offer an interest rate discount to qualified borrowers using autopay.
Then, you might make it a goal to always have a buffer in your checking account or overdraft protection to ensure a payment doesn’t get returned.
If you’re considering refinancing your student loans, shopping around can take time. When refinancing with SoFi, you don’t have to worry about paying upfront costs or hidden fees.
Looking to lower your monthly student loan payment? Refinancing may be one way to do it — by extending your loan term, getting a lower interest rate than what you currently have, or both. (Please note that refinancing federal loans makes them ineligible for federal forgiveness and protections. Also, lengthening your loan term may mean paying more in interest over the life of the loan.) SoFi student loan refinancing offers flexible terms that fit your budget.
With SoFi, refinancing is fast, easy, and all online. We offer competitive fixed and variable rates.
No, it does not cost money to refinance student loans. Most student loan refinance lenders do not charge fees associated with refinancing — including application fees and origination fees. If you are being charged a fee to refinance, that could be a red flag and you may want to look elsewhere.
On a student loan refinance, a finance charge is what you pay the lender beyond the principal balance. This would include interest and any fees associated with the loan.
If you want to consolidate your federal student loans, there is no application fee associated with a Direct Consolidation Loan. It does not cost the borrower anything to consolidate federal loans.
SoFi Student Loan Refinance
NOTICE: The debt ceiling legislation passed on June 2, 2023, codifies into law that federal student loan borrowers will be reentering repayment. The US Department of Education or your student loan servicer, or lender if you have FFEL loans, will notify you directly when your payments will resume For more information, please go to https://docs.house.gov/billsthisweek/20230529/BILLS-118hrPIH-fiscalresponsibility.pdf https://studentaid.gov/announcements-events/covid-19
If you are a federal student loan borrower you should take time now to prepare for your payments to restart, including the opportunity to refinance your student loan debt at a lower APR or to extend your term to achieve a lower monthly payment. Please note that once you refinance federal student loans you will no longer be eligible for current or future flexible payment options available to federal loan borrowers, including but not limited to income based repayment plans or extended repayment plans.
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Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.
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Source: sofi.com
Mortgage watchers expect rates to trend down by the end of the year. Will that long-awaited decline begin this month?
Mortgage rates are likely to remain volatile this month. While most forecasters call for them to ease below 6 percent later this year, that prediction assumes the Federal Reserve’s war on inflation will continue to bear fruit.
“It’s hard to know exactly where rates will go because there are a lot of mixed signals in the economy,” says Lisa Sturtevant, chief economist at Bright MLS, a multiple listing service operating in the Mid-Atlantic.
The first market-moving event on the calendar comes May 3, when the Fed unveils its latest position on interest rates. Many expect a 0.25 percentage point increase, following an identical boost at the central bank’s March 22 meeting.
While the Fed doesn’t dictate mortgage rates, the central bank’s policies ripple through the mortgage market. Since early 2022, mortgage rates have been driven by inflation — and by how aggressively the Fed has responded to rein it in.
If the Fed looks to be moving to the sidelines after an early May rate hike and we continue to see moderating inflation pressures, mortgage rates could slide back to the low 6s.
— Greg McBride, Bankrate Chief Financial Analyst
Many view the central bank’s actions as the clearest indicator of the direction of mortgage rates.
“It all depends on the Fed,” says Doug Duncan, chief economist at mortgage giant Fannie Mae.
“If the Fed looks to be moving to the sidelines after an early May rate hike and we continue to see moderating inflation pressures, mortgage rates could slide back to the low 6s, a level not seen since September,” says Greg McBride, chief financial analyst for Bankrate.
The Mortgage Bankers Association predicts rates will fall to 5.5 percent by the end of 2023 as the economy weakens. The group revised its forecast upward a bit — it previously expected rates to fall to 5.3 percent.
Meanwhile, Fannie Mae’s Duncan expects rates to be in the “high 5s” by the end of 2023. He bases that forecast on the assumption the central bank won’t cut rates in 2023.
Mortgage rates bounced around in April, frustrating homebuyers who hoped to make a deal during the spring selling season.
The 30-year fixed rate climbed from 6.32 percent the week of April 5 to 6.61 percent the week of April 19, according to Bankrate’s national survey of lenders. Then they retreated to 6.48 percent in Bankrate’s April 26 survey.
Rates fell in part because the banking industry’s woes were back in the headlines. In late April, fresh concerns about the financial sector spurred a flight to safety by investors. As a result, 10-year Treasury yields dipped. The 10-year Treasury is the benchmark most closely tied to 30-year mortgage rates.
The new worries echoed the March banking crisis, although not as loudly. Mortgage rates fell sharply after Silicon Valley Bank and Signature Bank failed, March 10 and March 12, respectively.
Inflation, too, has been a hallmark of the U.S. economy’s strong rebound from the pandemic recession of 2020. Nearly everyone expected the economy to fall into a recession in late 2022 or early 2023, but that hasn’t happened, at least not yet.
“With first-quarter GDP numbers showing a slowing economy, recession fears have been boosted, which could mean that we will see mortgage rates edge lower in the months ahead,” says Sturtevant. “Mortgage rates typically fall during recessionary periods.”
Political bickering — in the form of a partisan standoff over the federal budget — could also affect mortgage rates.
“The debt ceiling is the ultimate wild card, and markets will get very nervous very fast as the deadline approaches,” says McBride.
Another factor to consider is the “the spread,” the gap between 10-year Treasury yields and 30-year mortgage rates. That margin has been unusually high for the past year or so.
“If that gap were to narrow, mortgage rates could decline,” says Sturtevant.
The spring homebuying season is officially underway, and these are nervous times for buyers. Home prices remain elevated, and mortgage rates have fluctuated day to day.
“Even if rates do come down, we’re not going to see the sub-3 percent rates we had during the pandemic,” says Sturtevant, “and the decline in rates is not going to solve the housing affordability challenge which has gotten persistently worse, particularly for first-time homebuyers. In markets with extremely low inventory, lower rates could actually exacerbate the housing affordability crunch if they bring more prospective buyers into an already competitive market.”
Source: bankrate.com
Mortgage rates were supposed to start falling by now.
Instead, they’ve been flirting with 7 percent.
Given a recent shift in the economic outlook, mortgage experts say there’s little relief in sight. With inflation still running hot and the political showdown over the debt ceiling intensifying, mortgage rates are unlikely to fall sharply this month.
“We can expect to see more of the same: Mortgage rates will continue to remain stagnant at levels above 7 percent,” says Glenn Brunker, president of Ally Home. “We will see little shift until the Federal Reserve signals a pause to further rate hikes.”
Mortgage rates continue to confound expectations. In 2022, rates surged past 7 percent far faster than anyone predicted. Then, in 2023, mortgage rates calmed, leading many observers to predict rates would fall all the way to the low 5 percent range this year.
Now, though, rates are on the rise again. The average mortgage rate was 6.52 percent as of May 3, according to Bankrate’s weekly national survey of lenders. Rates climbed steadily through May, reaching 6.90 percent in the final survey of the month.
Borrowers will be at the mercy of two main drivers in June. One is the political standoff over the federal debt ceiling. Treasury Secretary Janet Yellen recently gave June 5 as an important date on that front — while the federal government had sufficient reserves to pay June’s Social Security checks, it could run out of money that day.
The debt ceiling brinksmanship — or worse — seems likely to take what is already an abnormally wide spread and expand it further.
— Greg McBride, Bankrate Chief Financial Analyst
The other question is about inflation, and what the Federal Reserve might do at its June meeting.
“Between the debt limit impasse and the next meeting of the Federal Reserve, all eyes will be on Washington,” says Lisa Sturtevant, chief economist at Bright MLS, a real estate listing service in the Mid-Atlantic region.
The debt ceiling clash has roiled markets, and that anxiety is affecting mortgage borrowers. The uncertainty is showing up in the gap between 30-year mortgage rates and their closest proxy, the 10-year Treasury yield.
This interval, known to economists as “the spread,” typically runs between 1.5 and 2 percentage points. If the 10-year yield sits at 4 percent, for example, the 30-year fixed mortgage rate should track close to 6 percent.
However, in late May, the spread had jumped to more than 3 percentage points — its highest level since 2009, according to Bankrate research.
“A big wildcard in the housing market right now is the debt ceiling debate,” says Sturtevant. “While it would be unprecedented, if an agreement is not reached and the government defaults on its debt, mortgage rates likely will spike, which could significantly reduce homebuyer demand. Even the extended negotiations are beginning to rattle markets and bring down consumer confidence.”
A quick resolution to the debt debate would calm mortgage markets — but further escalation would do the opposite.
“The debt ceiling brinksmanship — or worse — seems likely to take what is already an abnormally wide spread and expand it further,” says Greg McBride, Bankrate’s chief financial analyst.
Another problem area for mortgage borrowers is inflation. In late May, the Commerce Department reported that a measure of inflation closely watched by Fed officials accelerated in April, rising 4.4 percent compared to a year ago. In March, that measure, the Personal Consumption Expenditures price index, had been at 4.2 percent.
Zillow Senior Economist Orphe Divounguy calls the unexpected report “a bump on the road” for central bank policymakers.
“On one hand it points to a resilient U.S. consumer with still high purchasing power,” says Divounguy. “On the other hand, stubbornly high inflation means bond yields — and mortgage rates that tend to follow them — are likely to remain elevated.”
While the Fed doesn’t directly control mortgage rates, its moves do set the overall tone for borrowing costs. The central bank had hinted, after raising rates at 10 consecutive meetings, it would take a pause. Many observers even thought the Fed would begin cutting rates in the coming month — but the latest inflation report changes those predictions.
“Inflation is still running too high,” says Mortgage Bankers Association Chief Economist Mike Fratantoni, “and recent economic data is beginning to convince investors that the Federal Reserve will not be cutting rates anytime soon.”
Source: bankrate.com
Even with mortgage rates hovering around 15-year highs, home prices in California edged higher for the fourth consecutive month in May, according to the latest data from the California Association of Realtors.
The median single-family home price in the Golden State last month was $836,110, roughly $25,000 higher than in April and $100,000 above February’s average, data shows.
The San Francisco Bay Area ($1,300,000), Central Coast ($1,000,000) and Southern California ($800,000) continue to be the priciest, while the Far North region ($380,000) is the most affordable, CAR said.
Home prices are still well below the all-time high recorded in May 2022 when the average California single-family home cost $893,200.
Average Single-Family Home Prices in California
Region | May 2023 | April 2023 | May 2022 |
Statewide | $836,110 | $811,950 | $893,200 |
Condo/Townhomes | $635,000 | $634,000 | $675,000 |
Los Angeles Metro | $765,000 | $740,000 | $805,000 |
Central Coast | $1,000,000 | $1,020,000 | $995,000 |
Central Valley | $485,000 | $463,000 | $510,000 |
Far North | $380,000 | $385,000 | $425,000 |
Inland Empire | $574,990 | $565,000 | $596,000 |
San Francisco Bay Area | $1,300,000 | $1,250,000 | $1,465,000 |
Southern California | $800,000 | $785,000 | $845,000 |
Additionally, the number of homes under contract in California rose by nearly ten percent in May after dipping in April and March.
This is the ‘most expensive’ neighborhood in California, study says
After an initial spike in the lead-up to Congress’s debate over the debt ceiling, mortgage rates have hovered in the high 6% range. The Fed has already signaled as many as two more rate hikes this year to tame inflation.
But regardless of where interest rates go in the short term, or even long-term, Wei says the underlying reason home prices move higher in California comes down to simple supply and demand.
“The tight supply is really constraining,” he says. “People are not putting their houses on the market and, of course, we’re just not building fast enough.”
Source: ktla.com
With the national default deadline looming, the federal government reached an agreement to raise the debt ceiling.
The economy’s resilience and uncertainty surrounding the debt ceiling negotiations caused mortgage rates to climb, according to Freddie Mac Chief Economist Sam Khater.
Many homeowners and potential home buyers hope this means lower interest rates as we head into summer. Read on to learn more about the debt ceiling and its impact on the housing market and mortgage rates.
Also known as the debt limit, the debt ceiling represents the maximum amount of money that the United States Treasury can borrow to pay the nation’s bills.
The U.S. hit its current borrowing limit of $31.4 trillion in January. That means the federal government cannot currently increase the amount of its outstanding debt, and paying the nation’s bills becomes more complicated.
In a letter to Congress, Treasury Secretary Janet Yellen said the U.S. could be incapable of paying its debt as early as June 1. If so, the federal government is at risk of defaulting for the first time in U.S. history.
She goes on to say the U.S. defaulting on its bills could cause “irreparable harm” to the U.S. economy. Interest rates on credit cards, auto loans and mortgage rates could skyrocket.
By increasing the debt ceiling, the Treasury can borrow funds to pay for government obligations, such as Social Security and Medicare benefits, tax refunds, military salaries, and interest payments on national debt.
Although the debt ceiling itself doesn’t directly determine mortgage rates, its impact on the overall economy could wreak havoc on rates. The potential consequences and uncertainty associated with reaching the debt ceiling could impact investor confidence and lead to changes in interest rates, including mortgage rates.
“The debt ceiling debate can have a direct impact on the economy and mortgage rates. Continued delays will lead to increased uncertainty and result in upward pressure on mortgage rates,” said Shane Spink, regional manager for Acopia Home Loans.
With a resolution reached and the debt ceiling raised, things should mostly return to normal. The U.S. never hit the ceiling before — although it’s gotten close in a few instances and those came with minor economic repercussions.
With the fear of a default removed and stability reestablished, consumer confidence will likely be restored and interest rates should slowly start coming down over the next 60 days.
Not raising the debt ceiling could lead to dire consequences for the U.S. economy.
If the debt ceiling isn’t raised in time, the added uncertainty in our nation’s economy could negatively affect financial markets and interest rates across many sectors, including mortgage rates. This is because a debt default would force the Treasury Department to pay higher interest on its bonds to convince investors to stay the course.
Mortgage rates typically move in lockstep with yields on 10-year Treasury notes. Unless Congress moves quickly, yields could rise as the demand for Treasury notes could temporarily halt if investors worry that Treasuries are now a risky investment. Additionally, bondholders could seek higher rates to balance the increased exposure.
In either of these scenarios, rising yields could push mortgage rates higher. Higher mortgage rates can have several effects on the housing market and potential homebuyers.
First, higher rates increase the cost of borrowing, making mortgages less affordable for many buyers. This could also reduce overall demand for homes and potentially slow down an already struggling housing market.
Second, higher mortgage rates can impact the ability for existing homeowners to refinance their mortgages. When rates rise, refinancing becomes less popular, as the potential savings from refinancing decrease. This can impact a homeowner’s ability to access lower rates and potentially reduce their monthly mortgage payments.
Higher mortgage rates can also result in a ripple effect within other sectors of the economy. The housing market is deeply linked to a number of industries, such as construction, real estate and home improvement. Slower housing activity due to higher rates can dampen all these sectors, leading to job loss and decreased economic growth.
Any default, whether its short-lived or a lengthy road to recovery, could trigger a recession. The potential for job loss is massive, leading to an interruption in income for millions of Americans.
Consumers and workers could be hurt almost immediately as the federal government may be forced to cut back benefits and paychecks. As interest rates rise, so do borrowing costs. Rising rates in addition to withheld paychecks, could seriously impact housing, both in the short-term and long-term.
Investor sentiment would be impacted negatively, as it raises concerns about the government’s ability to repay its debts.
Not only would it add to an already struggling housing market that’s suffering from a lack of inventory and rising mortgage rates, getting a mortgage loan would become even more challenging. Small businesses would also struggle as getting a small business loan would become more difficult.
“We are already seeing what higher rates are doing to the overall housing market,” Spink says. “If the debt ceiling isn’t raised in time, this could be an unnecessary addition to already higher rates in a time where we would typically see accelerated applications during peak summer months”.
The debt ceiling has long been a contentious issue in the United States, with debates and political battles often becoming a major topic when the government nears its borrowing limit.
Whenever the risk of defaulting on the nation’s debt looms over the U.S economy, it’s important to keep a close eye on the debt ceiling debate, as well as its potential effect on mortgage rates and the housing market.
Whether you’re considering a new home purchase or a refinance, mortgage borrowers should speak with a lender about the available options for locking in a favorable rate prior to a potentially drastic jump in interest rates.
Source: themortgagereports.com