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June
8

A Good Mortgage Rate Is Under 8% Historically Speaking

We have been enjoying historically low-interest rates for several years since the crash of 2008. In 2020 and 2021, mortgage interest rates fell to record lows. Because of COVID, the Federal Reserve's emergency actions helped push mortgage rates below 3% and kept them there.

Today in 2022, as the economy is trying to recover, mortgage interest rates are rising. The Federal Reserve has projected further tightening as they continue to intervene to get the money supply under control. That means interest rates will likely continue higher. The thirty-year rate briefly hit over 5% in April for the first time in a decade. If you're considering refinancing or buying a home, it might be wise to lock in a rate.

Historically, 30-year mortgage rates have averaged just under 8%. So even as today's rates inch past 5%, they are still a relatively good deal.

A Look Back For Perspective

Even with the recent rate increases, today's thirty-year mortgage rates are below average historically. Freddie Mac is the industry source for mortgage rates and has kept records for over 50 years. Between April 1971 and April 2022, the rate for a 30-year mortgage averaged 7.78%. So, today's rate, even at 5%, is still below the average.

In 1981, the mortgage rate was 16.63% on average. Rates reached an all-time high of 18.63% on October 9, 1981 – almost five times the 2019 annual rate. Here's some perspective:

  • At 16.63%, a $200,000 mortgage has a monthly cost of $2800 for principal and interest.
  • Compared with the historical average (7.78%), $2800 is an extra monthly cost of $1300 - $15,900 annually.
  • Just before the 2008 meltdown, rates sat at 6.03%. A $200,000 mortgage cost $1200 per month
  • By 2016, rates dropped to 3.65%. A $200,000 mortgage has a monthly cost of $915 in principal and interest.

In 2021 30-year mortgage rates plummeted as a result of the COVID pandemic. These record-low rates were a result of government policies to save the economy. Rates were never meant to sustain that level. The more world economies recover from the pandemic's economic effects, mortgage interest rates are likely to continue rising and approach their historical average.

The 2022 Rate Spike

In the first quarter of 2022, the rapid economic recovery and the Fed pulling back on stimulus programs caused rates to spike. According to Fannie Mae, the 30-year rate jumped from 3.76% to 5.11%. An increase of 1.35% in just eight weeks. Rates will likely continue to rise throughout the year as the Fed tightens. Where they'll peak is impossible to predict.

So, Is Buying A Home Still a Good Idea?

Even as interest rates creep up, it's important to remember that home loans are personalized to the buyer. Tracking mortgage rates can help you see trends, but not every buyer will benefit equally from today's rates.

Several factors are considered by lenders when you apply for a home loan. They include:

Credit Score – If your score is over 720, you'll have a better chance of securing a lower rate. Even if you have a sub-600 score, programs from the USDA, FHA, and VA loans are available. If you're planning on applying for a loan, it might be worth it to give yourself some time to improve your credit score. It could save you thousands of dollars over the life of your loan.

Down Payment – A higher down payment can lower your rate. Most mortgages, including FHA loans, require 3 or 3.5% down. Some loans like VA and USDA loans are available with a 0% down payment. If you make a 10 - 20% down payment, you might qualify for a conventional loan with low or no private mortgage insurance. This can reduce your monthly cost significantly!

Loan Type – The type of loan you receive will also affect your interest rate. However, this hinges on your credit score. For example, if your score is 580, you may only qualify for a government-backed loan like an FHA mortgage. FHA mortgages come with a lower interest rate but require mortgage insurance no matter how much you put down. Adjustable-rate mortgages typically offer lower introductory rates. However, those rates can change after an initial period.

Loan Term – While we have been focusing on the 30-year mortgage rate, with a 15-year mortgage, you would have a higher monthly payment, but they tend to have a lower interest rate. Even with a slightly higher monthly payment, a 15-year loan can save you thousands of dollars in interest throughout the life of the loan. For example, at 3% a $200,000 30-year loan would cost $103,000 in interest charges. A 15-year fixed would cost about $49,000 in interest.

Discount Points – You can purchase discount points to lower your interest rate. A discount point costs 1% of the home loan amount and reduces your interest rate by 0.25%. As an example, for a $200,000 loan, each discount point would cost $2000 upfront. However, the buyer recoups the investment over time thanks to the lower interest rate. Skip the discount points if you're planning on selling or refinancing within a few years.

The Bottom Line On Today's Mortgage Rates

For several decades, mortgage rates have been declining from their all-time highs. We have enjoyed historically low rates for over a decade, hitting a record low in 2021 due to the pandemic. Rates are on the rise but are still significantly below their historical average of 7.78%.

While it's a good idea to keep an eye on the daily rate changes in the market, if you are considering the purchase of a home and get a good mortgage rate quote today, don't hesitate to lock it in. With rates on the rise, if you can secure a 30-year mortgage rate below 5%, you're paying less than most American homebuyers throughout history! That's still a pretty good deal.

May
4

Buying a home is an exciting adventure! According to NerdWallet's 2020 Home Buyer Report, about 99.3 million Americans plan to purchase a home in the next few years. Today, as we begin to return to normal, the Federal Reserve is signaling that interest rates are on the way up.

If you're one of the 99.3 million, or if you already have a home with a variable rate loan, you need to take steps today to secure the best mortgage rate possible. Here are some steps to take to help you prepare to apply for a mortgage.

Preparation is the Key

Taking simple steps before applying for financing can help you get the best mortgage interest rate. It can save you real money over the long term. Here are some tips that can help whether you're buying a home or refinancing a variable-rate mortgage.

  • Check Your Credit Scores and Reports

Any effort to secure the best interest rate possible begins with your credit. Start by checking your scores and reports with Experian, Equifax, and TransUnion. Check for any inaccuracies in your credit report that may be dragging down your score.

  • Work on Your Score

If your credit score is below 760, it's worth taking the time to improve your score. Take steps to pay down balances and clean up any inaccuracies on your credit report. Having excellent credit will make you eligible for the lowest mortgage rate.

  • Save For a Bigger Down Payment

Lenders look favorably on buyers who put down a larger down payment. With a lower down payment, your lender may require private mortgage insurance. Typically, this is the case if you put down less than 20%. However, a larger down payment can help you to avoid PMI costs. Plus, a larger down payment can also get you a lower interest rate.

  • Consider a Shorter Loan Term

The interest rate on a 15-year loan is lower than a 30-year loan. A shorter-term loan can save you tens of thousands of dollars in interest payments over the curse of the loan.

  • Decrease Debt

Decreasing your debt can improve your debt-to-income ratio. Banks measure this important ratio when issuing a mortgage. Combining paying down debt with increasing income can significantly affect your credit score.

  • Apply with at Least Three Lenders

There are literally thousands of mortgage lenders competing for your business. Another way to assure the lowest rate is to apply with at least three lenders and see which offers you the lowest rate.

Five Questions To Consider Before You Choose A Lender

The first step is to figure out what you can afford. Then you need to begin the search for a lender offering a great rate.

Understanding what you can afford when buying a home is a critical first step.

Answering the following questions can help you to define your needs.

• Fixed or Adjustable-Rate Mortgage?

Mortgages either have a fixed interest rate or an adjustable rate.

A fixed-rate loan locks you into a consistent interest rate for the entire term of the loan. The portion of your payment that goes toward principal plus interest remains constant. However, insurance, property taxes, and other costs can vary.

The interest on an adjustable-rate loan can change over time. Most ARMs begin with an introductory period of 10, 7, 5, or 3 years, during which your rate remains stable. After that, your rate may change periodically.

• Should You Pay Points?

Discount points are fees borrowers pay to reduce the interest rate on their mortgage. One point is equal to 1% of the loan. Each point reduces the mortgage rate by .25%. However, the rate can vary. When you pay points, you are paying thousands of dollars upfront to save a few dollars each month. It takes several years for the monthly saving to add up to where they exceed the initial amount paid upfront.

• What are Closing Costs

Closing costs are charged by the lender and other parties. They do not affect the mortgage rate (unless you're paying points). But they do impact your expenses. Closing costs are typically around 3% of the purchase price of your home and are paid at the time you close.

• What About First-Time Home Buyer Programs?

Before choosing a mortgage, find out if any special programs can make homebuying less costly. Each state offers its own mix of programs, for example, first-time buyer programs or professionals like teachers, first responders, or veterans.

• How Much Will You Put Down?

Some groups like Veterans may qualify for 100% financing. Other mortgages only require a down payment as low as 3% or 3.5%.

VA Loans – If you or a spouse are active military or a veteran you may qualify for a no down payment VA loan.

USDA Loans – If you live in a rural area, the Department of Agriculture might guarantee a low or no-down-payment loan, and even help cover closing costs.

FHA Loans – Mortgages insured by the FHA allow down payments as low as 3.5% and are more forgiving of low credit scores, but you will pay more in insurance over the life of the loan.

Comparing Loan Offers

Applying with multiple lenders means you'll need to compare loan offers. Here are a few tips for comparing offers.

  • Lenders offer Different Mortgage Rates

by applying with multiple lenders, you'll receive different rates. The more you shop, the more you might be able to save. Apply with different types of lenders, such as a bank, a credit union, and an online lender so you can compare offers.

  • Shop for Loans Within a Set Time Frame

The big three credit bureaus encourage you to shop for the best rate. You typically have 14 to 45 days, depending on the scoring model, to apply for as many mortgages as you want with the same effect on your score as applying for a single loan.

  • Compare Closing Costs

Each lender is required to provide a loan estimate form that details the terms and fees of the loan. The loan estimate is designed to simplify comparing mortgages.

Taking the time to prepare and get your financial information in order by paying down debt, checking your credit scores and reports with the big three, and saving a bigger down payment can help you to get the best possible mortgage rate. Speak with your accountant and your realtor to learn about all of your options.

Getting a lower mortgage rate can save you thousands of dollars throughout your loan term. It's worth taking the time and effort to educate yourself and get your financial house in order before you begin applying for a loan.

July
15

Buy a Home with Student Debt
With the total amount of student loan debt in the United States topping out at over $1.53 trillion, it's no surprise that many college graduates are concerned with how their debts will impact their ability to achieve their other financial goals. 

After finishing college and landing a great job, purchasing a home of your own is often the next logical step, but will you be able to do it if you're debt-strapped?

The answer is yes! Our real estate agents help new college graduates find their dream homes all the time. It will take some planning and preparation, but it's entirely possible. Start by following these five tips. 

  1. Evaluate Your Current Financial Situation
    Before you consider committing to a mortgage, it's essential to take an honest look at your current finances. Do you have enough cash set aside to cover emergency expenses?

    Do you have enough consistent, reliable income to pay your monthly bills and cover your mortgage, taxes, homeowners insurance, and other expenses related to owning a home? Once you can confidently answer "yes" to these questions, you're ready to start getting serious about buying a home.

    Click Here to Read More...

April
15

Pay Off Mortgage
Should you pay off your mortgage early?

That's a question that many people struggle with, whether they are already paying on a mortgage or are working with our real estate agents to find a home to buy.

The answer to that question isn't the same for everyone since it depends largely upon each person's financial situation, as well as their long-term goals and preferences. Here are three things to consider as you determine whether or not paying off your home early makes sense for you.

  1. Do you have other debt?
    Given today's low-interest rates for traditional, fixed-rate home loans, chances are good that any other debt you are carrying, be it credit card debt, student loans or auto loans is more expensive than your mortgage. If you are carrying debts with higher interest rates, it makes good financial sense to channel any extra funds you have into paying these off before you worry about making extra payments on your mortgage.

  2. Will paying off your home early leave you cash-strapped?
    There is no harm in doing without a few luxuries to pay off your home more quickly, but you'll want to evaluate your budget carefully to be sure that making extra mortgage payments doesn't leave you on shaky financial ground.

    Leaving yourself cash-strapped to get it done can be risky business if the unexpected happens, like a job loss, for instance, or health problems. It can also cause you financial problems later in life if you're scrimping on retirement savings to prepay your mortgage.

    Before you commit a more substantial chunk of your budget to pay down your home loan more quickly, put some money away for a rainy day. You should save enough to cover your ordinary expenses for at least six months, but preferably a year. Also, be sure that money goes into your retirement fund every month before you send that extra payment on your home loan.

  3. Will your mortgage term stretch into your retirement years?
    Most of us will see a significant decrease in income once we retire. If your loan, should you pay just as scheduled, will still be around when you retire, it may make sense for you to get your home paid off early. Owning your home free and clear by retirement age will pay off by reducing your monthly expenses significantly, right when you likely have less income to meet them.

The bottom line is that, if you can comfortably afford to pay off your home early, it makes sense to do so. You'll save money over the long-term by paying less interest, and you'll also have the peace of mind that comes with having clear title to your home. However, if paying more towards your mortgage will cause undue financial strain, it probably makes better sense to keep up with those agreed-upon monthly payments.

If you have more questions about the pros and cons of paying your home off early, please feel free to contact us. We're always happy to put our expertise and experience on all things related to home ownership to work for the benefit of New England homeowners and home buyers.

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