2013 First Time Home Buyers: Why Mortgage Interest Rates Matter

Those who fail to adapt to changing market conditions always get burned. Buyers got burned in the market escalation before 2007 (a ‘seller’s market’). Sellers often got burned for not adjusting quickly enough during the five-year housing crash since 2007 (a buyer’s market’). The market is changing again and buyers are at risk.

Mortgage interest rates are the most powerful influence affecting affordability for home buyers and specifically first time home buyers. They determine whether people can purchase city homes from CAYENAATX.COM or whether they can afford a smaller apartment on the outskirts of a town. Mortgages can have a rather large input in people’s futures, so it’s important to understand how they work and what they are. If you’re struggling to get to grips with mortgage applications and interest rates, it might be helpful visiting a website like dustindimisaconnect.com. Applying for a mortgage is a complicated process so it’s vital that you do it correctly. The fact that interest rates have dropped to a recent mind-blowing 3-3.5% for a 30 year fixed loan is testimony to how bad the housing crash is/was. Since 2012 the housing markets are improving and this means interest rates will go up, especially as the overall economy improves.

How Mortgage Interest Rates Work

  • Mortgage interest is long-term debt (e.g. 30 years) and therefore is tied to the bond market, also long-term debt. The Federal Reserve, which we hear about frequently in the news, regulates short term rates such as overnight money or the Prime rate.
  • When the economy is bad and worsening, money flees to more stable, fixed, and long term investments. The bond market takes the long view on the economy and produces predictable results regardless of cycles and crises. However, bond yield rates (interest on the investment) drop in difficult times because of increased demand. Five years of bad economic news continued to deflate rates to a low level unprecedented in half a century, but in retrospect, that is not a surprise. Good economic news, particularly improving market conditions, causes money to flow from bonds to the stock market, which reacts with quicker reward and also keeps capital more liquid. Recently, the stock market just surpassed the 14,000 level, not seen since before the housing crash – which is why so many are curious about it these days. Indeed, some who have housing investments may be eyeing up a robinhood app review to see if they should play other markets. Money is moving from bonds to stocks to cash in. The bond market now has to attract more investors with higher yield rates; interest rates therefore rise.
  • Because bonds are a fixed investment for a long period of time, the enemy of bonds is inflation. If I have a 30-year bond (e.g. a mortgage) and inflation causes me to lose 3% per year in real buying power, then that loss comes at the expense of my yield rate (effectively 3% less each year). I am captive to this failing trend unless I can get rid of my bonds, perhaps selling at a loss. Inflation is caused by high government debt and increasing money supply as the government creates/prints more money to pay its bills. It is worth less than it was because there is more of it. Does this sound familiar? Is inflation a necessary consequence of our spending? If so, then interest rates will also rise.

Evaluating Our Current Conditions

  • Currently, there is little inflation and still too little good economic news. Interest rates have stayed very low. However, inflation is a very real risk. Although the inflation rate officially is low, how many of us already feel the increase in the cost of fuel and food and many other staples of life right now? Prices rise in part to keep up with real value because of inflation and in part because of increased demand and therefore improving market conditions.
  • The housing industry is in recovery in most markets nationally right now. Businesses have become lean, efficient, and profitable because of the last 5 years. The stock market is reaching new highs. Unemployment numbers appear to be in decline. Consumer confidence is getting stronger. Will those changes portend a rise in interest rates?
  • The federal government has been stimulating the economy and propping it up since the financial meltdown in the fall of 2008. The Federal Reserve continues to buy mortgage bonds at a pace of about $85 billion per month in order to keep mortgage interest rates low. How long can that continue? The Fed also employs various methods to stimulate economic growth. How much longer will that be seen as necessary? Either these props will no longer be needed and so interest rates will rise on the good news, or when these government purchases stop, the artificially low-interest rates will be left in the dust.

Predicting the Future and Reading the Tea Leaves

Predicting the future is something we are addicted to but most often proves futile. However, we can know two things reliably:

  1. We know what we have now, which is a mortgage interest rate for a 30 year fixed loan which is lower than anything known in over 100 years.
  2. We know what will cause these rates to rise. Economic vitality, inflation, and the removal of government props and stimulus will cause interest rates to rise.

Fluctuation in mortgage rates, which can change several times a day, will likely be with us for a while as our economic news fluctuates widely. Expect rates to rise and fall for a while. How high will rates go? In the early 1980’s, because of a serious inflation problem, interest rates commonly exceeded 20% and mortgage interest peaked at over 16%. 10 years ago, before the market run-up, the 30 year fixed mortgage rates were about 8%, double what it is today. 10 years before that (1990) they hovered at 9%.

For 5 years, I have listened to radio commercials from a particular national mortgage broker warning that ‘these historic rates cannot last!’ Well, they did, and they continued to go down. So much for future prescience! No one really knows what the future holds and it might be possible that one day you may need to use the money tied up in your property to get you through a financial situation or snag in your life. If so then the use of an online equity release calculator may be on the cards to figure out the next step forward.

But like the broken clock (analogue not digital), right at least twice a day, these people will be right at some point. Buyer opportunities today are exceptional but there are good reasons to be concerned that this will change soon. There is logic to what causes rates to rise. If you know the reasons, you can watch, evaluate, and make your own informed decision about when buying is good for you and your goals.

Randy McCreith, Principal Broker
Bella Casa Real Estate Group
Cell: 503-310-9147 Fax: 866-281-6653

Why a 15-Year Mortgage Is a Good Deal

Report below from Venessa Ward, Sr. Mortgage Banker-Pacific Residential Mortgage

Mortgage Rates Have Fallen to an All New Low!

So why should buyers consider a 15-year mortgage over a 30-year mortgage? SAVINGS!

Rates are lower. 15-year mortgages can be half a percent lower in rate or more depending upon investor and program.

Increased Principle Reduction. After the first 5 years of the loan, a 15-year mortgage will have 25% of the debt paid off vs. only around 8% with a 30-year term.

Reduced Total Interest Paid. 30-year mortgages typically have a much higher premium in interest payments. A person with a 15-year mortgage could pay less than half the amount of interest on the same loan amount, even at the same rate.

Considering most first time home buyers move within the first five years of owning their home, a 15-year mortgage allows them to build more equity by the time they are ready to sell or upgrade.

Mortgage Rate Update

* These rates are available with a 660 minimum fico score, based on a 1% Origination fee and 45 day lock using approved lenders and subject to loan approval

Courtesy of Naida Paris, Mortgage Broker

Mortgage Interest Rates

*These rates are available with a 640 minimum fico score, based on a 1% Origination fee and 45 day lock using approved lenders and subject to loan approval

ZERO DOWN – 100% VA or USDA loans.  USDA loans are only available in towns of 25,000 per less population. Income limit for a family of 1-4 persons is $82,800.  Check out the website for more info or just call me. http://eligibility.sc.egov.usda.gov/eligibility/welcomeAction.do.  Forest Grove and Wilsonville are eligible and all of Yamhill County except McMinnville.

3% DOWN – Fannie Mae Homepath loans.  Restricted to Homepath foreclosed homes.  3% down for owner occupied properties and a possibility of 10% down for investors. Visit www.homepath.com for more information.

3.5% DOWN – FHA – We have the new loan limits $362,250 in Yamhill, Multnomah, Clackamas and Washington County.

5% DOWN– the 95% is available on conventional with mortgage insurance.  Borrower may need their own money for the 5% down payment.

Special thanks to Naida Paris for this information!

Mortgage rates and updates

*These rates are available with a 640 minimum fico score, based on a 1% origination fee and a 45 day lock using approved lenders and subject to loan approval.

Loans you might be interested in:

  • 100% USDA – This loan is available in any town in Oregon with a population of under 25,000, excluding only McMinnville in Yamhill County.   Don’t forget Wilsonville and Forest Grove is now eligible. Visit http://eligibility.sc.egov.usda.gov/eligibility/welcomeAction.do to see if your property is eligible for 100% financing. The program is now self supporting and there should not be any problems with funding throughout the year. There is a change in the funding fee with USDA.  As of October 1st all loans will have a 2% upfront funding fee – this is lower than it is currently – and a .3% monthly funding fee – this is new like FHA.  This will mean a slight increase in payments – example on a $175,000 loan the payment changed about $30.00 per month.
  • FHA – Funding fee has changed to 1% upfront and 1.15% per month. We have the new loan limits $362,250 in Yamhill, Multnomah, Clackamas and Washington County
  • VA – VA is reviewing their funding fee but has not made a determination as to amount yet.

Courtesy of Naida Paris
Northwest Mortgage Group, Inc.
Office (503) 538-0700   Cell (503) 550-6556
Like Naida on Facebook or check out her new Blog Naida’s Updates
Individual NMLS #246301 – Corp NMLS #40562 – Oregon ML #797

Mortgage rates hit lowest level since Eisenhower’s administration

The following article is written by Lani Rosales and is taken from Agent Genius.

Low, low, low

According to the National Association of Realtors, the 3.5% decline in existing home sales is due in large part to contract cancellations from declined mortgage applications or because of appraised values coming in below the negotiated price, halting the contract.

The bright spot, however, in housing is that despite cancellations and difficult lending, mortgage rates have hit their lowest level in over 50 years.

Freddie Mac’s primary mortgage market survey this week shows 30-year fixed rate mortgages averaging 4.15%, 15-year fixed rate mortgages average 3.36%, 5/1-year adjustable rate mortgages average 3.08% and one-year adjustable rate mortgages average 2.86%.

Dr. Frank Nothaft, vice president and chief economist for Freddie Mac said, “The Federal Reserve’s policy statement last week and ongoing market concerns over the European debt market carried momentum into this week allowing all mortgage products in our survey to reach all-time record lows.”

Nothaft notes that refinance applications averaged roughly 70 percent of all mortgage activity in 2011 and refinance volume rose 21.7% in the last week alone.

Home purchase loans are not exactly skyrocketing, but perhaps applications will rise with the good news of historically low rates despite difficulties in getting a loan to the closing table.