Uncommon Knowledge
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Portions of this article were drafted using an in-house natural language generation platform. The article was reviewed, fact-checked and edited by our editorial staff.
An adjustable-rate mortgage (ARM) comes with an interest rate that changes over time. Typically, you begin an ARM paying a lower, fixed rate for a set period of time. After that fixed-rate time expires, your rate adjusts to the market rate, either higher or lower. The most common types of ARMs include 3/1, 5/1, 7/1 and 10/1 loans.
A 5/1 ARM is one type of adjustable-rate mortgage. The “5/1” refers to the length of the fixed-rate period and the frequency of rate changes, respectively. The “5” is the fixed-rate period of the mortgage — the first five years. The “1” is how often the interest rate adjusts after that — once per year.
Another common mortgage is the 5/6 ARM, which adjusts every six months after the initial five-year period.
The clock starts ticking on your 5/1 ARM as soon as you close the loan. If you were to close the mortgage in July 2024, for example, your rate wouldn’t change again until July 2029.
When this adjustment happens, the lender recalculates the interest on your loan going forward depending on how the rate has changed, up or down. One year later, your loan will adjust again, and the process will repeat to the end of the loan term. If your rate goes up, your monthly payment will also go up. The inverse is also true.
ARMs are uniquely structured to allow for a lower introductory rate and subsequent adjustments, but your rate can’t just keep climbing indefinitely. On your closing documents, you’ll see the following:
Knowing the caps on how much your interest rate could increase can help you plan and budget for future payments after the initial fixed-rate period ends. Alternatively, if you think you wouldn’t be able to afford higher payments, then exploring a fixed-rate loan might be a better option.
Let’s say you take out a 5/1 ARM loan for $300,000 with a 6.5 percent interest rate. For the first five years of the 30-year loan, your rate would be locked in at 6.5 percent, making your monthly payment about $2,045 during that time. With a 5 percent lifetime cap on your loan, your potential maximum monthly payment would be roughly $3,140.
You can use our adjustable-rate mortgage calculator to estimate your monthly payments and see how they might change over the loan’s term.
The index is a major factor in determining the rate you pay on your ARM. ARMs are typically tied to the 11th District Cost of Funds Index (COFI) or the Secured Overnight Financing Rate, also known as SOFR. You can find out the specific index your lender uses on your loan estimate paperwork. If the yield on that index increases, your ARM rate also increases.
Keep in mind that despite its pros, a 5/1 ARM isn’t best for everyone.
“The differential between the initial rate on an ARM and that of a fixed rate mortgage isn’t always the same, but the risk of future rate adjustments is always there,” says Greg McBride, CFA, chief financial analyst for Bankrate. “Sometimes the difference in [the] initial rate is slight enough that you don’t get enough benefit to justify the risk. An ARM can make sense if you don’t plan to be in the home long enough to see the first rate adjustment, such as if you plan to move again within the next 5 years. But even if you go this route, beware that if your initial timetable doesn’t pan out, you could face higher payments when the rate begins to adjust.”
If you’re in the market for a mortgage, a 5/1 ARM might be a good fit in a few situations:
In addition, your debt-to-income ratio must be 43 percent or less (some lenders may accept no more than 50 percent). For down payments, conventional ARMs require a minimum of 5 percent down, while FHA ARMs require a minimum of 3.5 percent. VA ARMs do not require a down payment.
You might think paying for mortgage points will also help you get the best initial interest rate on a 5/1 ARM, but this isn’t necessarily the smart move.
”It often takes five to six years before the cost paid for points upfront is recouped through the lower monthly payments,” says McBride. “Taking a 5/1 ARM makes sense if you plan to move within the next five years, but paying points to further reduce the rate would take longer than five years to recoup. If you have the cash to pay points, this is better suited when you plan to have the loan long enough to recoup the costs, such as a 10-year ARM or a fixed rate mortgage.”
Source: bankrate.com
Refinancing activity rebounded for the week ending February 2 after declining the previous week, as mortgage rates stabilize in the under-7 percent level, contributing to a rise in home loans application, the Mortgage Bankers Association (MBA) said on Wednesday.
The Refinance Index jumped 12 percent from the week before February and also rose by a percent compared to one year ago, according to MBA. Meanwhile, mortgage applications jumped by nearly 4 percent in the same time span.
The average cost of a 30-year fixed rate mortgage for a loan of $766,550 ticked up slightly to 6.80 percent compared to 6.78 the previous week.
“Mortgage rates have stayed close to where they started the year, despite swings in Treasury yields because of slowing inflation offset by stronger than expected readings on the job market,” Joel Kan, MBA’s deputy chief economist, said in a statement shared with Newsweek. “Rates at these levels have not prompted much of a reaction in the refinance market, as most homeowners have mortgages with much lower rates.”
Mortgage rates peaked at about 8 percent in the fall of 2023, making the cost of a home loan the highest it had been since the turn of the century. The elevated rate environment discouraged both buyers and sellers to step into the housing market who were reluctant to incur higher monthly payments of their housing loan.
Part of the reason rates jumped so high was due to the Federal Reserve’s hiking of its funds rate to battle soaring inflation. The rise in prices is cooling giving confidence that policymakers will slash rates but a strong jobs market is creating uncertainty on how quickly those cuts will happen.
But to begin the year, there is evidence that buyers are showing interest in dipping into the housing market, according to real estate platform Redfin, as rates have fallen over the last few weeks.
Redfin’s Homebuyer Demand Index, which tracks requests for tours, went up 6 percent for the week ending January 28, the platform said. Real estate agents say, however, that that increase in interest has yet to translate to a substantial jump in sales.
MBA experts are seeing a similar bubbling up of buyer interest.
“Purchase activity has been strong to start 2024 compared to the final quarter of 2023. However, activity is still weaker than a year ago because of low housing supply,” MBA’s Kan said.
Supply of homes is a huge challenge for the housing market. Housing economists have told Newsweek in the past that the market is 4 million homes short of demand, contributing to a jump in prices.
Some economists suggest that as mortgage rates fall, the used homes market may pick-up as sellers would begin to come out of the sidelines and finally put their homes in the market.
“Once they start moving, and I suspect we’ll see more and more of those folks moving in the coming year, they’ll have to become somewhat aggressive on pricing, they’re going to have to lower their price,” Mark Zandi, chief economist at Moody’s Analytics, told Newsweek last week.
Newsweek is committed to challenging conventional wisdom and finding connections in the search for common ground.
Newsweek is committed to challenging conventional wisdom and finding connections in the search for common ground.
Source: newsweek.com
Mortgage interest rates were mostly down compared to a week ago, according to data compiled by Bankrate. Rates for 30-year fixed, 5/1 ARMs and jumbo loans decreased, while rates for 15-year fixed mortgages increased.
Mortgage rates could gradually come down this year, according to Greg McBride, CFA, Bankrate chief financial analyst. Mortgage rates cooled at the tail end of 2023 with the Federal Reserve pausing its campaign of rate hikes to tame inflation. The central bank now expects to cut rates in 2024 — a direction that would affect many areas of the economy, including on the 10-year Treasury, a key benchmark for fixed-rate mortgages.
“The 10-year Treasury yield that serves as a baseline for fixed mortgage rates will have a bouncy journey lower, moving back above 4 percent early in 2024 but trending lower as inflation cools and the Fed gets closer to cutting rates,” says McBride. “For mortgage rates, that portends a general downtrend — albeit with fits and starts — in 2024.”
Rates accurate as of January 31, 2024.
The rates listed here are averages based on the assumptions here. Actual rates displayed on-site may vary. This story has been reviewed by Suzanne De Vita. All rate data accurate as of Wednesday, January 31st, 2024 at 7:30 a.m.
The average rate you’ll pay for a 30-year fixed mortgage today is 6.96 percent, down 7 basis points from a week ago. This time a month ago, the average rate on a 30-year fixed mortgage was higher, at 7.06 percent.
At the current average rate, you’ll pay $662.62 per month in principal and interest for every $100,000 you borrow. That’s down $4.70 from what it would have been last week.
Use Bankrate’s mortgage rate calculator to estimate your monthly payments and see how much you’ll save by adding extra payments. The tool will also help you calculate how much interest you’ll pay over the life of your loan.
The average rate for a 15-year fixed mortgage is 6.49 percent, up 1 basis point since the same time last week.
Monthly payments on a 15-year fixed mortgage at that rate will cost around $871 per $100,000 borrowed. The bigger payment may be a little tougher to find room for in your monthly budget than a 30-year mortgage payment, but it comes with some big advantages: You’ll save thousands of dollars over the life of the loan in total interest paid and build equity much more quickly.
The average rate on a 5/1 adjustable rate mortgage is 6.12 percent, ticking down 1 basis point from a week ago.
Adjustable-rate mortgages, or ARMs, are mortgage loans that come with a floating interest rate. In other words, the interest rate will change at regular intervals, unlike fixed-rate mortgages. These loan types are best for people who expect to sell or refinance 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 6.12 percent would cost about $607 for each $100,000 borrowed over the initial five years, but could climb hundreds of dollars higher afterward, depending on the loan’s terms.
The average rate for the benchmark jumbo mortgage is 7.00 percent, down 6 basis points over the last week. A month ago, the average rate for jumbo mortgages was greater than 7.00, at 7.13 percent.
At the average rate today for a jumbo loan, you’ll pay a combined $665.30 per month in principal and interest for every $100,000 you borrow. That’s $4.04 lower, compared with last week.
The average 30-year fixed-refinance rate is 7.16 percent, down 2 basis points over the last seven days. A month ago, the average rate on a 30-year fixed refinance was higher, at 7.21 percent.
At the current average rate, you’ll pay $676.08 per month in principal and interest for every $100,000 you borrow. That’s $1.35 lower, compared with last week.
The Federal Reserve has signaled that it intends to cut rates in 2024, depending on inflation and employment data and other factors. The Fed meets again on Jan. 31.
As of mid-January, the average 30-year fixed rate mortgage sits at just under 7 percent. As the year progresses, expect rates to slowly trend downward, says McBride.
“Mortgage rates will spend the bulk of the year in the 6s, with movement below 6 percent confined to the back half of the year,” says McBride.
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.
While mortgage rates change daily, it’s unlikely we’ll see rates back at 3 percent any time soon. 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.
Keep in mind: You could save thousands over the life of your mortgage 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?”
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.
Source: bankrate.com
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Fri, Jan 19 2024, 11:02 AM
If you’re in Chicago, the newest attraction is “the rat hole.” Here in Denver, besides the cat I saw in the airport yesterday being walked on a leash, one attraction is the National Ice Core Lab, where, you guessed it, ice sample cores from all over the world are kept for research purposes at temperatures even colder than those outside. It is around this time of year when plenty of people think about vacations or moving to warmer places… Like Phuket in Thailand. In 2023 it saw 6.24 million airport arrivals, up 88 percent from 2022, and the real estate market is booming. The island has 26 beaches and a population of 420,000. Phuket is trying to move away from over-reliance on tourism by simply selling to wealthy outsiders, often Russians: 27,000 Russians have moved to Phuket in the past 12 to 18 months, fueling a development boom. Follow the money, right? Today’s podcast can be found here, and this week’s is brought to you by nCino, makers of the nCino Mortgage Suite for the modern mortgage lender. nCino Mortgage Suite’s three core products (nCino Mortgage, nCino Incentive Compensation, and nCino Mortgage Analytics) unite the people, systems, and stages of the mortgage process. Today’s features an interview with Polunsky Beitel Green’s Marty Green on mortgage spreads, why 2024 is a year of transition in the mortgage industry, and potential ramifications of NAR lawsuits.
Lender and Broker Services, Products, and Software
Anchor Loans Launches TPO Broker Channel for Flip, Bridge, New Construction and Rental Investment Financing! With so many banks and private lenders scaling back on fix and flip and construction lending, house flippers and builders are turning to mortgage brokers and other intermediaries to help identify reliable sources of capital. National private lending leader Anchor Loans has stepped up to launch a new Third-Party Originator (TPO) Broker Channel to serve loan brokers and other third-party originators whose clients are the real estate investors and developers building and refurbishing homes for America’s buyers and renters. With 25+ years in business, $14B+ in loans funded to date and expert teams lending in 48 U.S. states, Anchor offers flexible loan programs, experience-based pricing, $100k to $10MM loan amounts, fast funding, and a speedy draw process. Mortgage brokers and loan originators can learn more here.
Lenders across the country are still looking for ways to cut costs without sacrificing revenue. Start off easy with collecting credit report fees upfront. Fee Chaser by LenderLogix makes it as easy as clicking a button… literally.
Rocket Pro TPO’s recent IGNITE Live showcased a powerful line up of new product & technology solutions designed to help broker partners exceed expectations with clients and outpace its competition. If you missed it, check it out here. Mike Fawaz, Rocket Pro TPO’s EVP reminded the audience of the benefits of the lender’s free credit report offer. He also featured Product Compare, an innovative new tool available from Pathfinder by Rocket. This platform enables partners to quickly and easily identify the ideal mortgage products for every client scenario. Also, the lender introduced a special discount for partners using Mobility Market Intelligence (MMI): a leading real estate and transaction database that will immediately impact broker’s business strategies. Be sure to review the IGNITE Live video for many other updates and special offerings. Interested in learning more about a Broker or Non-Delegated Correspondent partnership? Contact Rocket Pro TPO to learn more.
Wholesale and Correspondent News
A&D Mortgage launched its innovative ITIN Mortgage Program, designed to extend homeownership opportunities to a broader community. This groundbreaking initiative offers mortgage solutions to individuals who possess an Individual Taxpayer Identification Number (ITIN) but do not have a Social Security number, thereby catering to a previously underserved market. Tailored to meet the diverse needs of borrowers, ranging from first-time homebuyers to those seeking to invest in property, there are several attractive features such as eligibility for borrowers with minimum FICO score of 660 for Super Prime loans. A DSCR (Debt Service Coverage Ratio) option is available for applicants with a minimum FICO score of 700.
Discover more information about the ITIN Mortgage Program and other services offered by A&D Mortgage.
United Wholesale Mortgage (UWM) announced that it will sunset the name of its consumer-facing website, FindAMortgageBroker.com, and replace it with Mortgage Matchup. “Mortgage Matchup will continue to be a consumer-facing website geared toward homebuyers and real estate agents and will offer both educational material around the homebuying and refinancing processes, along with a searchable database of independent mortgage brokers near them. The goal is to connect this audience with a local mortgage broker in their area and they understand the vast array of loan options available to them based on their specific financial situation.”
According to IHDA, nearly 10 percent of all first-time homebuyers use IHDA Mortgage products to help receive the additional leverage needed to bridge the gap of homeownership. An IHDAccess Forgivable loan is for both first-time and repeat homebuyers and offers a very competitive interest rate to help keep costs down over the length of the mortgage. IHDAccess Forgivable highlights include 4 percent of the purchase price up to $6,000 in assistance for down payment and closing costs, forgiven monthly over 10 years and does not have to be repaid. 30-year, fixed rate mortgage with an affordable interest rate. Available to first-time and repeat homebuyers statewide. Interested homeowners can learn more about IHDAccess Forgivable and eligibility requirements by contacting any INB mortgage lender.
Rocket Pro TPO, the wholesale arm of Rocket Mortgage, has just announced updates to its ONE+ program aimed at making it easier for prospective homeowners to obtain a low-down-payment conventional mortgage. ONE+ allows buyers to make a down payment of as little as 1 percent of the home’s purchase price. The program now includes Freddie Mac’s Loan Product Advisor. Use of the automated underwriting system could increase buyer eligibility by 16 percent, Rocket Pro TPO executive vice president Mike Fawaz said in a recorded statement.
Angel Oak Mortgage Solutions DSCR Loan (Investor Cash Flow) program has been enhanced to accommodate an impressive 85 percent Loan-to-Value (LTV). Loan highlights include Purchase Only, Minimum DSCR 1.00. SFR, PUD, Condo, Multifamily 2 – 4 units. Minimum loan amount $150,000, Maximum loan amount $1 million, and minimum FICO 720.
Plaza Home Mortgage® is kicking off the New Year with improved updates to its Solutions Non-QM, DSCR, Jumbo AUS 1 and Jumbo Champion loan programs. Details are available in the updated Solutions Non-QM Program Guidelines, DSCR Investor Solutions Program Guidelines, Jumbo AUS 1 Program Guidelines, and Jumbo Champion Program Guidelines.
Citizens Correspondent National Bulletin 2024-01 includes information on Conventional Conforming Products- FNMA- Income Calculator, FNMA- Restricted Stock Income Units, Non-Taxable Income-DU, LPA Cash-Out Occupancy and Condo Eligibility, VVOE Alternatives – DU and LPA, FHA and VA Loan Limits- AUS update, USDA Product Update, Secondary Marketing Contact Info and Disaster Tax Filing Relief. See the bulletin for additional information and all lock, delivery, and purchase by dates, if required.
The average annual number of business applications rose to 4.9 million between 2020-2022. This is an 89 percent increase compared to 2005-2016. This strong and steady market of non-traditional, high-quality borrowers presents a clear opportunity for Non-QM program options. How to capitalize on this growing segment of borrowers? Angel Oak Mortgage Solutions range of products for self-employed borrowers can help you unlock this market. Bank Statement Mortgage, 12- or 24-months business or personal bank statements, Profit and Loss (P&L) statements are a valid form of income verification, non-permanent residents allowed, Closed End Second Mortgage, Borrowers receive a lump-sum payment, no restrictions on how borrowers can use the funds. Owner-occupied, second homes, and non-owner occupied.
Capital Markets
Economic data yesterday held some good news for U.S. consumers, with signs of improvement in the job market and some relief on mortgage rates. Initial jobless claims (187k) fell to the lowest level in over a year, a bigger drop than any forecaster expected. After two weeks of increases, mortgage rates fell to the lowest level in eight months, per the latest Freddie Mac Primary Mortgage Market Survey. For the week ending January 18, the 30-year and 15-year mortgage rates fell 6 basis points and 11 basis points to 6.60 percent and 5.76 percent, respectively. Both rates have fallen more than 100 basis points from the October highs. (Unfortunately, the more timely data already shows rates moving quickly higher – MND)
LOs looking for an increase in inventory in homes for sale aren’t seeing much help from builders. The overall direction of economic data recently has given Fed officials some cover to maintain their “hawkish” rhetoric. That is of little comfort to homebuilders, evidenced by housing starts falling in December for the first time since August. Housing starts showed a smaller than expected decrease in December (actual 1.460 million, expected 1.417 million).
There’s historically been theory that “an enemy of my enemy is my friend.” We’ll see. Something to keep an eye on is an expanding conflict in the Middle East. Pakistan’s military carried out targeted strikes against militant hideouts in Iran on Thursday, responding to an attack by Tehran a day earlier. Historically strife around the world leads to a flight to quality and the buying of U.S. fixed income securities. Now, not so much.
Today’s economic calendar sees some key data later this morning with existing home sales for December, a preliminary January look at Michigan sentiment, November TIC data from the U.S. Treasury, and remarks from Fed Vice Chair of Supervision Barr and San Francisco Fed President Daly. We begin the day with Agency MBS prices roughly unchanged from Thursday’s close and the 10-year yielding 4.12 after closing yesterday at 4.14 percent on little financial news.
Employment
Logan Finance Welcomes Paul Jones as SVP, Business Development! Logan Finance is happy to announce that Paul Jones has joined the organization as SVP, Business Development. “Paul is an industry giant with an uncanny ability to identify and develop winning strategies and educate the industry on the benefits and opportunities within Non-QM. We’re thrilled to have Paul join the team”, said Logan’s Chief Revenue Officer, Aaron Samples. Paul Jones has spent 30 years in Operations and Sales and he’s developed a methodology for parlaying the many aspects of Non-QM into a cohesive strategy for Account Executives and Originators. This strategy is instrumental in scaling Non-QM production, expanding referral sources, and refining customer outreach. “The spotlight is on the world of Non-QM right now, and I’m ready to help focus that spotlight on Logan,” Paul said. “We have a lot of things in play for 2024, and I’m looking forward to contributing to Logan’s exciting future.”
“Primis Mortgage was born out of a belief that we, as an industry, can do better. We decided that to do this, we needed to act like an Independent Mortgage Bank, but leverage the stability and resources of a traditional bank. And the results speak for themselves. We saw a 107 percent increase in funded loans from 2022 to 2023, and while most companies were cutting back, we decided to step up: increasing our sales staff by 160 percent in that same time period. Primis Mortgage is a place where proven all-stars come to win. Our in-house support staff averages just 22 days from ITP to Docs Out, and leadership constantly motivates and educates our loan officers to strive for continued growth. If you’re a highly-successful loan officer ready to take your career to the next level, reach out to Chris Blevins, National Sales Director.”
Last week, Sales and Operations leadership from both the Lower and Thrive Mortgage teams got together in Columbus, OH to collaborate and discuss the way forward. Not just for the merger between the two entities, but what they see for the industry. After two days together, the response was clear… this is a powerful move for both companies. The game-planning, engagement with new colleagues, and enthusiasm continues to grow as each side returned to share what they’d learned. Above all else, the most commonly referenced statement was, “It felt like we’ve known each other for years.” Ready to find out what the insiders already know? Let’s talk about how you can Thrive with Lower.
A well-capitalized IMB, based in the NJ/PA tri- state market, is seeking Loan Officers, Sales Teams, or possible acquisition opportunities of small to midsize IMBs in NJ, NY, CT, FL, PA, while expanding in MD, DC, VA, NC and SC. The IMB’s focus is a highly personable and high touch experience for LOs and Realtors. Organizationally lean, very competitive pricing, a wide array of products, and much higher LO Comp than what is offered by other larger IMBs. The focus is to attract serious loan officers who want an unparalleled service, where your voice matters and you have a seat at the table in growth. If interested, message Chrisman LLC’s Anjelica Nixt for a confidential discussion.
Download our mobile app to get alerts for Rob Chrisman’s Commentary.
Source: mortgagenewsdaily.com
Fannie Mae has a rosy outlook for mortgage rates. The government sponsored enterprise is projecting that rates will drop below 6% by the end of 2024, which in turn will boost refi volumes and help thaw the existing home sales market.
Following years of volatility in mortgage rates, the housing market will begin its gradual return to a more normal balance in 2024.
Fannie Mae’s economic and strategic research (ESR) group expects home sales and mortgage origination activity to begin a gradual recovery in the presence of a slow-growing economy.
“Inflation’s decline and the resultant Fed pivot to signaling future rate cuts rates lead us to believe that home sales and mortgage originations likely bottomed out in the second half of 2023 and that a gradual improvement is now underway. We expect mortgage rates to dip below 6% by year-end 2024 and for homebuilders to continue to add new supply, both of which should aid affordability,” said Doug Duncan, Fannie Mae’s senior vice president and chief economist.
The ESR group expects the annualized pace of existing home sales to move up to 4.5 million units by the fourth quarter of 2024, up from 3.8 million in Q4 2023.
Overall, Fannie Mae expects that the slowly normalizing existing homes market, as well as additional housing supply from the construction of new homes, will help keep further home price growth in check in 2024.
Home prices are now expected to rise 3.2% over the year, compared to 7.1% in 2023.
Fannie Mae forecasts the total single-family mortgage originations volume to be $1.98 trillion in 2024 and $2.44 trillion in 2025, up from $1.50 trillion in 2023.
Of the total $1.98 trillion origination volume in 2024, $1.5 trillion is projected to come from purchase origination volume, a 19% increase from $1.3 trillion in 2023.
Refinance mortgage origination volume will remain subdued as about 90% of outstanding Fannie Mae single-family conventional 30-year fixed rate mortgage loans currently have a note rate below 6%.
“So, while many recent borrowers from 2023 will begin to face meaningful benefits by refinancing, a strong refinance wave driven by rate-term borrowers is not expected in 2024. Even as rates moderate, we expect continued interest in cash-out refinancing relative to past periods, especially given heightened levels of aggregate homeowner equity available following the home price gains of the last few years,” the ESR group said.
Another good news is that Fannie Mae removed its explicit call for a recession in 2024 and replaced it with an expectation of “below-trend growth.”
While Fannie Mae had forecast a modest downturn in 2024 up until last year, the ESR Group noted the rapid recent easing in financial conditions following the Federal Reserve’s December meeting and the solid, upward trend in real personal income growth in October and November as positive impulses for growth over the coming quarters.
As a result, Fannie Mae upgraded its 2024 economic outlook to a modest expansion of 1.1% from a 0.3% Q4/Q4 contraction of real gross domestic product (GDP).
Still, the ESR group believes the economy remains at a higher-than-normal risk for a recession in 2024.
Mixed labor market signals, recent rise in shipping rates due to attacks on container vessels in the Red Sea and easing of monetary policy opening doors for inflation to possibly reanimate are among the factors that Fannie Mae listed as risks for a recession.
“Our baseline forecast continues to show inflation trending toward the Fed’s 2% target over the course of the year, but risks to the outlook remain,” said the ESR group.
Source: housingwire.com
In 2023, mortgage rates were up year over year—a trend that continued from 2021. Rising rates from 2021 through 2023 were due to rate hikes introduced by the Federal Reserve as part of economic strategies to try to combat inflation.
Since current mortgage rates can be a huge factor in your ability to get a mortgage and the total cost of owning a home over time, prospective home buyers should educate themselves on this topic. Learn more about mortgage rates, how rates impact your home loan, and how to improve your chances of getting a good rate below.
Your mortgage rate is a reflection of the amount of interest you agree to pay a lender on your home loan. There are many mortgage rate structures, including fixed and variable rates. It’s critical to learn more about rate types and discuss the fine print with your mortgage broker or lender so you understand exactly how much your loan might cost.
To demonstrate how mortgage rates work to impact the total cost of your home, consider some hypothetical situations below.
For a fixed-rate, 30-year loan on a $300,000 home with a down payment of $60,000:
Interest Rate | Monthly Payment | Total Loan Cost |
5% | $1,552 | $463,990 |
6% | $1,702 | $518,605 |
7% | $1,806 | $585,446 |
8% | $2,025 | $635,012 |
Note that this hypothetical situation takes into account property tax and homeowner’s insurance, which is typically added into the monthly payment. It’s also calculated based on a randomly selected zip code in Virginia. Your location and other factors can change how your monthly payment is calculated.
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Mortgage rates rise and fall with the market, changes made by the Federal Reserve and other factors. Here’s a look at some mortgage rate trends to help you understand how the figures have changed historically:
Date for rate reported by Freddie Mac | U.S. 30-year fixed rate | U.S. 15-year fixed rate | U.S. 5/1 adjusted rate |
1/10/13 | 3.40 | 2.66 | 2.67 |
1/9/14 | 4.51 | 3.56 | 3.15 |
1/8/15 | 3.73 | 3.05 | 2.98 |
1/7/16 | 3.97 | 3.26 | 3.09 |
1/12/17 | 4.12 | 3.37 | 3.23 |
1/11/18 | 3.99 | 3.44 | 3.46 |
1/10/19 | 4.45 | 3.89 | 3.83 |
1/9/20 | 3.64 | 3.07 | 3.30 |
1/7/21 | 2.65 | 2.16 | 2.75 |
1/13/22 | 3.45 | 2.62 | 2.57 |
1/12/23 | 6.33 | 5.52 | not included on report |
By mid-2023, rates for a U.S. 30-year fixed rate mortgage averaged over 7%. Most economic experts indicate that rates are expected to go down, at least slightly, through 2024. That’s according to predictions from organizations such as Fannie Mae and the National Association of Realtors.
As you can see, the current mortgage rates at the time this article was written are unlikely to be relevant when you’re ready to get a home loan. You may want to research mortgage rates before you buy a home to understand the market, and you can find current rates by searching for them online. Sources such as Freddie Mac and Fannie Mae are reliable, and major news outlets tend to provide ongoing reporting on interest rates as well.
Of course, average mortgage interest rates at any given time only provide a baseline from which you can start your financial research. You may end up paying a rate that’s more or less than the average depending on factors such as your creditworthiness and the type of mortgage loan you decide to go with. Here are some tips for improving your chances of getting a good rate.
No matter what the average is, the best mortgage rates tend to be reserved for those with excellent credit. Before you begin the hunt for a new home, order your free credit reports and get a look at your credit score. This reduces the chance of being surprised during the mortgage application process.
Once you have your credit reports, go through them and look for any potential errors. If you see anything that could impact your credit health negatively, such as a misreported balance or a late payment you actually made on time, you can dispute the information. The credit bureaus must investigate disputes, and if the information turns out to be incorrect, they must make edits to your report. That can help improve your credit.
When you make a bigger down payment, you reduce how much of the home price a lender has to fund. That creates a lower loan amount, which might help you get a lower rate. In part, this is because the lender has less risk. If you don’t pay the loan as agreed and the lender forecloses on your home, it’s more likely to be able to sell the house and cover its losses.
As you can see from the historical rate information in the table above, interest rates are different, given different types of loans and terms. Rates are typically lower on 15-year fixed rate mortgages, for example. However, paying your entire mortgage back over 15 years rather than 30 does mean you’ll pay a much larger monthly payment, so make sure you consider all the financial factors before you make a decision.
You may be able to buy down your mortgage rate by paying for discounts up front. This can temporarily or permanently reduce the amount of interest you pay, which could reduce the total cost of your home.
Take time to compare your options before you apply for a mortgage loan. You may also want to do the work to get preapproved before you start house shopping, as preapproved buyers tend to be more attractive to sellers during the bidding process.
Source: credit.com
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Barclays and Santander have announced cuts to their mortgage rates, adding to momentum for cheaper UK home loan deals after HSBC and Halifax reduced rates last week.
Santander led its announcement with a sub-4 per cent deal available to new and existing customers with a deposit of at least 40 per cent on a five-year fixed rate mortgage. It said its residential fixed rates would fall by up to 0.82 percentage points from Wednesday.
Barclays will from Wednesday offer a two-year fix at 4.17 per cent, down from 4.62 per cent, for borrowers with a 40 per cent deposit. Its rates will fall by up to 0.5 percentage points across its residential range, and it will offer those with a smaller 25 per cent deposit a two-year rate of 4.2 per cent, down from 4.7 per cent.
The Co-operative Bank slashed rates on Tuesday by more than one percentage point for some deals. Existing customers looking to remortgage can now access a two-year fix starting from 3.85 per cent, while five-year deals start at 3.74 per cent. For new customers the equivalent rates are 4.22 per cent and 3.84 per cent respectively.
The changes follow rate cuts announced last week by HSBC, Halifax and Leeds Building Society across their residential ranges.
Mortgage rates have been falling for several weeks as competition between lenders intensifies. The latest cuts follow a drop in market swap rates in December, after investors predicted a quickening pace of falls in inflation and Bank of England interest rates over the coming year. Lenders use swap rates to guide their pricing of fixed-rate mortgages.
Adrian Anderson, director at broker Anderson Harris, said: “The market is predicting that the base rate might come down quicker than the Bank of England is suggesting . . . Over the short term, I think we’re going to continue to see a reduction in fixed-term pricing from lenders.”
Two clients called him last week to discuss remortgaging temporarily to a variable rate deal in the expectation they could lock in to a lower fixed rate later. But on seeing the higher rates on variable deals, they demurred.
“A lot of people last year took variable trackers in the hope that fixed rates will start to come down and now they have,” Anderson said. “So I do think we’re at that point where it could be the time to switch from tracker margin to a fixed rate. The fix is so much cheaper than variables.”
Mortgage rates may have fallen in recent weeks, but they remain well above the levels on offer before the “mini” Budget of September 2022. Average two-year fixed rates are currently 5.81 per cent, down from a high of 6.86 per cent last summer, according to finance site Moneyfacts, but were at 4.7 per cent on the eve of the “mini” Budget.
Aaron Strutt, a director at broker Trinity Finance, said one factor behind the rate cuts was the falling cost of funding mortgages for banks and building societies, as indicated by swap rates. “The lenders know the only way to get the markets moving again and to boost some of the low lending figures they had last year is to issue cheaper rates,” he said.
The fall in swap rates since December — with two-year rates running at about 4.2 per cent — has opened up an unusual gap with the Bank of England base rate of 5.25 per cent. This is a sign of the extent to which investors expect base rates to fall over the coming years.
With swap rates so far out of kilter with the base rate, though, some brokers questioned how long swaps would continue to decline — and alongside them, mortgage interest rates. Anderson said: “The Bank of England is potentially not going to start reducing base rates until the spring.”
Chris Sykes, technical director at mortgage broker Private Finance, said a number of lenders had yet to reduce rates, so there were likely to be further cuts, though these were unlikely to be “dramatic”. He added that some rates offered in the latest round of cuts were below the relevant swap rate, a highly unusual position for lenders to be in. “This is very rare, so we don’t expect these rates to be around for long.”
Source: ft.com
Mortgage interest rates inched up this week, following nine straight declines totaling a decrease of 118 basis points (1.18%).
The average 30-year fixed rate mortgage (FRM) rose from 6.61% on Dec. 28 to 6.62% on Jan. 4, according to Freddie Mac.
“Given the expectation of rate cuts this year from the Federal Reserve, as well as receding inflationary pressures, we expect mortgage rates will continue to drift downward as the year unfolds,” said Sam Khater, Freddie Mac’s Chief Economist.
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Mortgage rates fluctuated significantly in 2023, with the average 30-year fixed rate going as low as 6.09% on Feb. 2 and as high as 7.79% on Oct. 26, according to Freddie Mac.
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The range can be largely attributed to the Federal Reserve’s ongoing fight against inflation, juxtaposed with uncertainty in the banking sector sparked by Silicon Valley Bank’s collapse. However, with duress permeating the financial market and the fallout from U.S. debt ceiling talks, the Fed may continue making hikes to bring interest rates down.
With the economy likely heading into a recession, it’s possible we’ve already seen the peak of this rate cycle. Of course, interest rates are notoriously volatile and could tick back up on any given week.
Experts from CoreLogic, Home Qualified, Realtor.com and others weigh in on whether 30-year mortgage rates will climb, fall, or level off in January.
Craig Berry, branch manager at Acopia Home Loans
Prediction: Rates will moderate
“As inflation is the no. 1 item on the Federal Reserve’s radar right now, the Feds may choose not to lower the federal funds rate until inflation comes down. And, while Fed rate cuts aren’t a must-have in order for mortgage rates to come down, interest rates are affected by the federal funds rate.
The Feds continue to seek a balance between inflation and maximum employment so as not to cause significant damage to the economy which could trigger a recession. Recent momentum has been positive, and as long inflation cooperates, mortgage rates may see a slight decline in January. However, it isn’t likely that we’ll see significant drops to longer-term rates until we get further into 2024.”
Ralph DiBugnara, president at Home Qualified
Prediction: Rates will fall
“Rates finally shifted down some in December and stabilized lower. U.S. payrolls came in lower than anticipated, unemployment was up and building of new homes was down. These are good signs that inflation may have reached its peak and could trigger a lowering of rates. I expect the Fed to stay neutral for the time being and possibly through the first quarter of the year with possible cuts coming only if we see a drastic shift in the economy. For January, I believe the average 30-year fixed will land at 7.125% and the 15-year fixed will be 6.75%.”
Selma Hepp, chief economist at CoreLogic
Prediction: Rates will fall
“Mortgage rates should continue to decline, albeit very gradually and given there are no surprises with inflation. We should see rates fall below 7% mark.”
Hannah Jones, senior economic research analyst at Realtor.com
Prediction: Rates will fall
“If inflation and employment data continue to show signs of slowing, mortgage rates are likely to ease in January, though at a slower clip than in recent weeks. As incoming data confirms that the economy is indeed cooling, the upward pressure on mortgage rates will continue to let up and buyers will enjoy lower rates than in recent months.
However, if inflation or employment data come in stronger than expected, we could see rates pick up steam once again. Investors expect the Fed to hold steady at the current target rate in next week’s meeting, which would signal the Committee’s confidence in the current policy stance to bring inflation down to the target 2%. As inflation reaches the target level, mortgage rates will continue to drift lower.”
Jess Kennedy, COO at Beeline
Prediction: Rates will fall
“We expect rates to continue to ease as we kick off 2024. You can see the signaling of a rate cut from the Fed in many ways. For example, it is harder to find long-term CDs at the higher interest rates we were seeing 45-60 days ago). Publicly traded companies are also seeing their stock prices move higher on the expectation of rate relief in 2024. All these signs signal rates start to tick down even ahead of an official rate cut.”
Odeta Kushi, deputy chief economist at First American
Prediction: Rates will fall
“In light of favorable trends in inflation and labor market data, the Federal Reserve appears to be on a path towards its goals, although achieving its 2% inflation target will take some time. Consequently, the Fed is expected to maintain a restrictive stance, which will keep mortgage rates elevated. However, given slowing inflation and a cooling labor market, and barring any unforeseen developments, modest reductions in mortgage rates are possible in January.”
Rick Sharga, CEO at CJ Patrick Company
Prediction: Rates will fall
“With inflation moving in the right direction, wage growth slowing, and the jobs market softening a bit, it seems likely that the Federal Reserve has finished rate hikes for this cycle. That, coupled with weakening bond yields, should create an environment where mortgage rates can start a gradual, but steady decline throughout 2024. January rates for 30-year fixed-rate loans will probably straddle 7% — ranging from 7.1% to about 6.9% as the market finds its footing to begin the year.”
As inflation ran rampant in 2022, the Federal Reserve took action to bring it down and that led to the average 30-year fixed-rate mortgage spiking in 2023.
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With inflation gradually cooling, the Fed adjusted its policies with smaller and skipped hikes. Additionally, the economy showing signs of slowing has many experts believing mortgage interest rates will gradually descend in 2024.
Of course, rates could rise on any given week or if another global event causes widespread uncertainty in the economy.
The 30-year fixed-rate mortgage averaged 6.62%% as of Jan. 4, according to Freddie Mac. All five major housing authorities we looked at project 2024’s first quarter average to finish above that.
The National Association of Home Builders sits at the low end of the group, predicting the average 30-year fixed interest rate to settle at 7.04% for Q1. Meanwhile, Fannie Mae had the highest forecast of 7.6%.
Housing Authority | 30-Year Mortgage Rate Forecast (Q1 2024) |
National Association of Home Builders | 6.77% |
Wells Fargo | 6.85% |
Fannie Mae | 7.00% |
Mortgage Bankers Association | 7.00% |
National Association of Realtors | 7.50% |
Average Prediction | 7.02% |
Mortgage rates came down for the ninth consecutive week.
The average 30-year fixed rate increased from 6.61% on Dec. 28 to 6.62% on Jan. 4 The average 15-year fixed mortgage rate fell, going from 5.93% to 5.89%.
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Month | Average 30-Year Fixed Rate |
December 2022 | 6.36% |
January 2023 | 6.27% |
February 2023 | 6.26% |
March 2023 | 6.54% |
April 2023 | 6.34% |
May 2023 | 6.43% |
June 2023 | 6.71% |
July 2023 | 6.84% |
August 2023 | 7.07% |
September 2023 | 7.20% |
October 2023 | 7.62% |
November 2023 | 7.44% |
December 2023 | 6.82% |
Source: Freddie Mac
After hitting record-low territory in 2020 and 2021, mortgage rates climbed to a 23-year high in 2023. Many experts and industry authorities believe they will follow a downward trajectory into 2024. Whatever happens, interest rates are still below historical averages.
Dating back to April 1971, the fixed 30-year interest rate averaged around 7.8%, according to Freddie Mac. So if you haven’t locked a rate yet, don’t lose too much sleep over it. You can still get a good deal, historically speaking — especially if you’re a borrower with strong credit.
Just make sure you shop around to find the best lender and lowest rate for your unique situation.
Many mortgage shoppers don’t realize there are different types of rates in today’s mortgage market. But this knowledge can help home buyers and refinancing households find the best value for their situation.
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The best mortgage for you depends on your financial situation and your goals.
For instance, if you want to buy a high-priced home and you have great credit, a jumbo loan is your best bet. Jumbo mortgages allow loan amounts above conforming loan limits, which max out at $ in most parts of the U.S.
On the other hand, if you’re a veteran or service member, a VA loan is almost always the right choice. VA loans are backed by the U.S. Department of Veterans Affairs. They provide ultra-low rates and never charge private mortgage insurance (PMI). But you need an eligible service history to qualify.
Conforming loans and FHA loans (those backed by the Federal Housing Administration) are great low-down-payment options.
Conforming loans allow as little as 3% down with FICO scores starting at 620. FHA loans are even more lenient about credit; home buyers can often qualify with a score of 580 or higher, and a less-than-perfect credit history might not disqualify you.
Finally, consider a USDA loan if you want to buy or refinance real estate in a rural area. USDA loans have below-market rates — similar to VA — and reduced mortgage insurance costs. The catch? You need to live in a ‘rural’ area and have moderate or low income to be USDA-eligible.
Mortgage rates displayed their famous volatility in 2023. Uncertainty in the banking sector led to downtrends, but ongoing inflation battles, Fed hikes and a hot job market drove growth.
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At its September and November meetings, the central bank held off on a rate hike, preferring to see if the economy would keep cooling organically. In December, the FOMC skipped a hike and projected cuts for 2024. As always, the committee said it would adjust its policies as necessary — which could mean additional hikes or possibly none at all.
Here are just a few strategies to keep in mind if you’re mortgage shopping in the coming months.
Indecision can lead to failure or missed opportunities. That holds true in home buying as well.
Although the housing market is becoming more balanced than the recent past, it still favors sellers. Prospective borrowers should take the lessons learned from the last few years and apply them now even though conditions are less extreme.
“Taking too long to decide to make an offer can lead to paying more for the home at best and at worst to losing out on it entirely. Buyers should get pre-approved (not pre-qualified) for their mortgage, so that the seller has some certainty about the deal closing. And be ready to close quickly — a long escrow period will put you at a disadvantage.
And it’s definitely not a bad idea to work with a real estate agent who has access to “coming soon” properties, which can give a buyer a little bit of a head start competing for the limited number of homes available,” said Rick Sharga.
Buyer demand is lower than a typical year, but the market usually heats up in spring and summer. Being decisive (and prepared) should only play to your advantage.
Since interest rates can vary drastically from day to day and from lender to lender, failing to shop around likely leads to money lost.
Lenders charge different rates for different levels of credit scores. And while there are ways to negotiate a lower mortgage rate, the easiest is to get multiple quotes from multiple lenders and leverage them against each other.
“For potential home buyers, it’s important to get quotes from multiple lenders for a mortgage, as rates can vary dramatically, especially during such a volatile period,” said Odeta Kushi.
As the mortgage market slows due to lessened demand, lenders will be more eager for business. While missing out on the rock-bottom rates of 2020 and 2021 may sting, there’s always a way to use the market to your advantage.
Rate shopping doesn’t just mean looking at the lowest rates advertised online because those aren’t available to everyone. Typically, those are offered to borrowers with great credit who can put a down payment of 20% or more.
The rate lenders actually offer depends on:
To figure out what rate a lender can offer you based on those factors, you have to fill out a loan application. Lenders will check your credit and verify your income and debts, then give you a ‘real’ rate quote based on your financial situation.
You should get three to five of these quotes at a minimum, then compare them to find the best offer. Look for the lowest rate, but also pay attention to your annual percentage rate (APR), estimated closing costs, and ‘discount points’ — extra fees charged upfront to lower your rate.
This might sound like a lot of work. But you can shop for mortgage rates in under a day if you put your mind to it. And shaving just a few basis points off your rate can save you thousands.
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Current mortgage rates are averaging 6.62% for a 30-year fixed-rate loan and 5.89% for a 15-year fixed-rate loan, according to Freddie Mac’s latest weekly rate survey. Your individual rate could be higher or lower than the average depending on your credit score, down payment, and the lender you choose to work with, among other factors.
Mortgage rates could decrease next week (Jan. 8-12, 2024) if the mortgage market takes a cautious approach to a possible recession. However, rates could rise if lenders account for the Federal Reserve taking measures to counteract inflation or if a global event brings economic uncertainty.
If inflation continues to dissipate and the economy cools or goes into a recession, it’s likely mortgage rates will decrease in 2024. Although, it’s important to remember that interest rates are notoriously volatile and are driven by many factors, so they can rise during any given week.
Mortgage rates may continue to rise in 2024. High inflation, a strong housing market, and policy changes by the Federal Reserve have all pushed rates higher in 2022 and 2023. However, if the U.S. does indeed enter a recession, mortgage rates could come down.
Freddie Mac is now citing average 30-year rates in the 7% range. If you can find a rate in the 5s or 6s, you’re in a very good position. Remember that rates vary a lot by borrower. Those with perfect credit and large down payments may get below-average interest rates, while poor-credit borrowers and those with non-QM loans could see much higher rates. You’ll need to get pre-approved for a mortgage to know your exact rate.
For the most part, industry experts do not expect the housing market to crash in 2023. Yes, home prices are over-inflated. But many of the risk factors that led to the 2008 crash are not present in today’s market. Low inventory and massive buyer demand should keep the market propped up next year. Plus, mortgage lending practices are much safer than they used to be. That means there’s not a subprime mortgage crisis waiting in the wings.
At the time of this writing, the lowest 30-year mortgage rate ever was 2.65%. That’s according to Freddie Mac’s Primary Mortgage Market Survey, the most widely used benchmark for current mortgage interest rates.
Locking your rate is a personal decision. You should do what’s right for your situation rather than trying to time the market. If you’re buying a home, the right time to lock a rate is after you’ve secured a purchase agreement and shopped for your best mortgage deal. If you’re refinancing, you should make sure you compare offers from at least three to five lenders before locking a rate. That said, rates are rising. So the sooner you can lock in today’s market, the better.
That depends on your situation. It’s a good time to refinance if your current mortgage rate is above market rates and you could lower your monthly mortgage payment. It might also be good to refinance if you can switch from an adjustable-rate mortgage to a low fixed-rate mortgage; refinance to get rid of FHA mortgage insurance; or switch to a short-term 10- or 15-year mortgage to pay off your loan early.
It’s often worth refinancing for 1 percentage point, as this can yield significant savings on your mortgage payments and total interest payments. Just make sure your refinance savings justify your closing costs. You can use a mortgage calculator or speak with a loan officer to crunch the numbers.
Start by choosing a list of three to five mortgage lenders that you’re interested in. Look for lenders with low advertised rates, great customer service scores, and recommendations from friends, family, or a real estate agent. Then get pre-approved by those lenders to see what rates and fees they can offer you. Compare your offers (Loan Estimates) to find the best overall deal for the loan type you want.
Mortgage rates are rising, but borrowers can almost always find a better deal by shopping around. Connect with a mortgage lender to find out exactly what rate you qualify for.
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1Today’s mortgage rates are based on a daily survey of select lending partners of The Mortgage Reports. Interest rates shown here assume a credit score of 740. See our full loan assumptions here.
Selected sources:
Source: themortgagereports.com
Many people mistakenly believe they can’t afford to buy a home because they don’t really know what their options are. Fortunately, home loans are not one-size-fits-all. There are various mortgages available to suit your budget and preferences.
So, before you start visiting open houses, take some time to familiarize yourself with the different home loans that are available. Going into the home buying process informed could help you save a lot of money on your down payment, interest, and fees.
Understanding the different types of mortgage loans will help you choose the option that’s best suited for you. Let’s look at a brief overview of the eight types of mortgages available in 2024.
A conventional loan is a mortgage that’s not issued by the federal government. There are two different types of conventional mortgages you can choose from: conforming and non-conforming loans.
A conforming loan falls within the guidelines laid out by Fannie Mae and Freddie Mac. You’ll take out a conforming loan through a private lender like a bank, credit union, or mortgage company. Since the government doesn’t guarantee the loan, conventional mortgages typically come with more stringent lending requirements.
According to the CFPB, the maximum loan amount for a conventional loan is $484,350. However, it may be as high as $726,525 in counties with a high cost of living. You’ll have to take out private mortgage insurance (PMI) if you don’t have a 20% down payment.
Conventional loans are fixed-rate mortgages, which means your monthly mortgage payment remains the same throughout the entire life of the mortgage loan. The terms typically range from 10 to 30 years:
Pros:
Cons:
A conventional 97 mortgage is similar to a conventional loan in that it’s widely available to various borrowers. The main difference is that with this type of home loan, you only have to pay a 3% down payment.
The program is available for first-time and repeat home buyers. However, it must be your primary place of residence, and the maximum loan amount is $510,400.
Pros:
Cons:
FHA loans are backed by the Federal Housing Administration and are a popular option for first-time home buyers. To qualify, you need to have a 3.5% down payment and a minimum credit score of 580.
If you have a credit score of 500 or higher, you can qualify for an FHA loan with a 10% down payment. These flexible requirements make FHA loans a suitable option for borrowers with bad credit.
To qualify for an FHA home loan, you must have a debt-to-income ratio of 43% or less. These loans can’t be used to purchase investment properties, and your home must meet the FHA’s lending limits.
These limits vary by state, so you’ll need to check the FHA’s website to see what the guidelines are for your area.
Pros:
Cons:
An FHA 203(k) rehab loan is sometimes referred to as a renovation loan. It allows home buyers to finance the purchase of their home and any necessary renovations with a single loan.
Many people purchase older homes to fix them up. Instead of taking out a mortgage and then applying for a home renovation loan, you can accomplish both within a single mortgage.
A rehab loan is similar to an FHA loan in that you’ll need a 3.5% down payment. However, the credit requirements are stricter, and you’ll need a minimum credit score of 640 to qualify.
Pros:
Cons:
The Department of Veteran Affairs guarantees VA loans. These loans are designed to make it easier for veterans and service members to qualify for affordable mortgages.
One of the biggest advantages of taking out a VA loan is that it doesn’t require a down payment or mortgage insurance premium (MIP). And there are no listed credit requirements, though the lender can set their own minimum credit requirements. VA loans typically come with a lower interest rate than FHA and conventional loans.
To qualify for a VA loan, you must either be active duty military, a veteran or honorably discharged. You’ll need to apply for your mortgage through an approved VA lender.
Pros:
Cons:
A USDA loan is a type of mortgage that’s available for rural and suburban home buyers. It’s a viable option for borrowers with lower credit scores that are having a hard time qualifying for a traditional mortgage.
USDA loans are backed by the U.S. Department of Agriculture, and they help low-income borrowers find housing in rural areas. USDA loans do not require a down payment, but you will need a minimum credit score of 640 to qualify.
You will need to meet the USDA’s eligibility requirements to qualify for the loan. But according to the department’s property eligibility map, over 95% of the U.S. is eligible.
Pros:
Cons:
A jumbo loan is a mortgage that exceeds the financing guidelines laid out by the Federal Housing Finance Agency. These loans are unable to be purchased or guaranteed by Fannie Mae or Freddie Mac.
A jumbo mortgage is financing for luxury homes in competitive real estate markets, and the limits vary by state. In 2024, the FHFA raised the limits for a one-unit property to $766,550, increasing from $726,200 in 2023. In certain high-cost areas, the limits for jumbo loans vary, reaching up to $1,149,825. These jumbo loans are for mortgages that exceed the set limits in their respective counties.
If you’re hoping to buy a home that costs more than $1 million, you’ll need to take out a super jumbo loan. These loans provide up to $3 million to purchase your home. Both jumbo and super jumbo mortgages can be difficult to qualify for and require excellent credit.
Pros:
Cons:
Unlike a fixed-rate mortgage, where the interest rate is set for the life of the loan, an adjustable-rate mortgage (ARM) comes with interest rates that fluctuate. Your interest rate depends on the current market conditions.
When you first take out an ARM, you will typically start with a fixed rate for a set period of time. Once that introductory period is up, your interest rate will adjust on a monthly or annual basis.
An ARM can be a suitable option for some borrowers because your interest rate will likely be low for the first couple of years you own the home. But you need to be comfortable with a certain level of risk.
And if you choose to go this route, you should look for an ARM that caps the amount of interest you pay. That way, you won’t find yourself unable to afford your monthly payments when the interest rates reset.
There are 4 different types of adjustable-rate mortgages typically offered:
Pros:
Cons:
When it comes to choosing a home loan, you need to consider a few key factors. First, you’ll want to think about the type of loan that is best suited to your needs.
Fixed-rate mortgages offer stability and predictability, while adjustable-rate mortgages (ARMs) can be a viable option for those who expect their income to increase significantly over time. You’ll also want to consider your budget and how much you can afford to borrow, as well as the size of your down payment and the length of the loan term.
It’s also crucial to shop around and compare offers from multiple mortgage lenders. While it’s tempting to go with the first lender you find, it pays to do your homework and see what other options are available.
This can help you get a better rate and more favorable terms on your loan. It’s a good idea to get quotes from at least three different lenders, and to consider both traditional banks and online lenders.
One of the most effective strategies is to improve your credit score. Lenders look closely at credit scores when deciding whether to approve a loan. Those with higher scores are typically offered better terms. You can improve your credit score by paying your bills on time, reducing your debt, and correcting any errors on your credit report.
Another tip is to make a larger down payment, which can help you secure a lower interest rate and reduce the size of your monthly payments. Finally, consider working with a mortgage broker, who can help you shop around and find the best deal.
As you can see, there are many home loans for you to choose from. The type of mortgage that’s best for you will depend on your current income and financial situation.
If you’re not sure where to start, consider working with a qualified loan officer. They can assess your situation and recommend the option that will be best for you.
Source: crediful.com
Mortgage rates declined significantly over the past week, marking the eighth straight week of falling interest rates.
The 30-year fixed mortgage rate is 6.61% for the week ending December 28, 2023, according to data from Freddie Mac. This represents a decrease of -0.06% from a week ago.
The 15-year fixed rate mortgage stands at 5.93%. That’s 0.02% lower than a week prior. At that rate, you’ll pay $840 per month in principal and interest for every $100,000 you borrow.
The rate you’ll actually receive will vary based on the price of the home you’re buying, your credit history, and the size of the down payment you’re making. You can compare the offers below to find your best rate.
High interest rates are sticking around as central banks around the world, including the Fed, battle stubbornly high inflation with a series of aggressive interest rate hikes. These efforts to rein in prices have also slowed global economic growth and fueled recession fears.
Geopolitical tensions stemming from the ongoing war in Ukraine and conflict in the Middle East have further clouded the economic outlook.
As the Fed asserts that more rate hikes are likely needed to tame inflation, analysts expect mortgage rates will continue trending upward in the near term. This could place even more affordability pressure on the housing market, especially impacting first-time homebuyers.
Getting the lowest mortgage rate possible can save you tens of thousands of dollars over the lifetime of your home loan. With rates on the rise in 2023, it’s more important than ever to understand the factors impacting mortgage rates, strategically shop for the best deal, and meet lenders’ requirements to qualify for the lowest rate.
This guide will cover everything you need to know about today’s mortgage rates, from how they’re determined to where experts expect them to go in the months ahead.
Mortgage rates tend to follow the direction of long-term government bond yields, especially the yield on 10-year Treasury notes. Here are some of the key factors that can influence fluctuations in these yields and mortgage rates:
When shopping for a home loan, following these tips can help ensure you lock in the lowest possible mortgage rate:
Mortgage lenders weigh many factors when reviewing applications, but most have basic requirements borrowers must meet to qualify for certain loans. Here are typical minimum standards for popular mortgage types.
Mortgage rates have seen significant fluctuations over the past few years:
The chart below shows average rates for the 30-year and 15-year fixed rate mortgages over the past three years.
The takeaway is that mortgage rates shift constantly in response to economic or political factors. Staying informed and timing your purchase to lock in a lower rate can make a huge difference in how much home you can afford. Casting a wide net when shopping for lenders pretty much guarantees you’ll secure the most competitive rate on your loan.
Mortgage rate data comes from Freddie Mac, a government-sponsored leader in the housing industry that tracks average mortgage rates. We considered average rates for both the 30-year fixed rate mortgage and 15-year fixed rate mortgage. Freddie Mac rates exclude additional fees and points.
Average rates are reported weekly on Thursdays and updated accordingly.
This article is not intended to be financial advice. Before making significant financial decisions, you can review your options with a financial advisor or credit counselor.
Source: qz.com