Posts Tagged ‘historically low interest rates’

Is It Time to Refinance An FHA Mortgage?

October 11, 2019

As discussed previously, using an FHA loan to buy a home makes sense for home buyers with relatively low credit scores and limited down payment funds. FHA loans offer very attractive pricing for these home buyers.

Interest rates have now fallen to their lowest level in three years, so it may be time for current FHA mortgage holders to consider a conventional mortgage refinance. The interest rate savings may not be huge, but changing from FHA mortgage insurance to private mortgage insurance could bring significant financial benefits.

I’m working with a couple now (we’ll call them Jack and Diane) who bought their home in 2017.  At that time, their qualifying credit score was in the mid-600’s and they had just enough cash for the FHA minimum down payment.  This was an ideal scenario for an FHA mortgage.

Fast forward to 2019 – their credit scores have increased and home appreciation in their neighborhood has given them more equity.  A conventional loan now makes sense for their updated situation.  They can refinance to a new interest rate that is just 0.25% less than their current rate.  Normally such a small monthly savings, by itself, does not justify the cost of refinancing.

In addition to the interest rate savings, they will also save money every month with lower mortgage insurance payments.  Switching from their FHA loan to a conventional loan will lower the mortgage insurance monthly premiums by about $120.  Their total monthly savings equal $160, and their refinance has a break-even point of just over two years.  Considering the interest rate savings plus the mortgage insurance savings makes their refinance worthwhile.

An added benefit is that their new private mortgage insurance will cancel in a few years (unlike the FHA insurance which is permanent), increasing their monthly savings to about $200. So, Jack and Diane will realize this bonus savings in just a few years.

Ultimately, home buyers who used an FHA loan two or three years ago may reap big rewards from a conventional refinance now, assuming their property value has increased.

Ron moved into your neighborhood in the last three years or so. At the neighborhood Halloween party, ask Ron if he has heard of an FHA mortgage. If he replies, “Yes, that’s the type of loan I have,” ask him if he would like to lower his monthly payment.  Then connect Ron with me.  We will quickly determine whether moving to a conventional mortgage can help Ron financially.

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American Homebuying Power Grows

September 26, 2019

Overall economic circumstances keep improving for potential homebuyers.  First American’s Real House Price Index (RHPI) shows that Americans’ homebuying power increased consistently from January through July 2019.  The index tracks single-family home price changes adjusted for mortgage interest rate changes and personal income changes.

Mortgage interest rates trended downward during the first half of 2019, and they are even lower now compared to mid-year.  First American reported mortgage rates in January were 4.5%, and rates moved into the 3’s over the summer.  Average household income increased over the same time period.

Decreasing mortgage rates combined with increasing household incomes provide a double boost to Americans’ home buying power.  The Index’s “house-buying power” for consumers increased roughly 10% from January through July.  According to First American’s Chief Economist, Mark Fleming, “House-buying power is at the highest it’s been since we began tracking it in 1991.”

That means now is a great time to buy a home!  Even though home prices have been increasing, the decrease in mortgage rates coupled with household income growth make right now the best time to buy a home in almost 30 years, based on the RHPI measures.

Do you have a Georgia friend who complains about a landlord who won’t fix problems?  Let them know that their homebuying power is stronger than it has been in decades, and connect them with me.  I’ll help them obtain the best home mortgage for their unique situation as quickly as possible.  I’ll help your friend take advantage of today’s really low mortgage rates before they increase to 2018 levels or even higher.  Together, we will fire their unresponsive landlord!

Which Type of Mortgage To Use – Scenario 2

August 23, 2019

Now let’s change our buyer scenario. Both Jack and Diane want to make offers on a home, but this time they have 10% to put down. (Curious about a smaller down payment?  Take a look at the prior scenario with a 3.5% down payment.)  They still have the same qualifying credit scores of 680 for Jack and 795 for Diane.

With Jack’s 680 credit score, his monthly payment for a conventional loan (principal, interest, and mortgage insurance “MI”) would be $1,514.30. For a FHA loan, his payment would be $1,452.29. Given Jack’s credit score – even with the 10% down payment – FHA still delivers a better price, even though FHA loans have the draw backs of the up-front MI and the permanent monthly MI (assuming Congress does not change the law).

In this scenario with Jack’s 10% down payment, the mortgage insurance falls off after 11 years (even if Congress doesn’t act). Meaning, the FHA loan becomes even more attractive now and into the future.

With Diane’s 795 credit score, her monthly payment for a conventional loan would only be $1,391.24. Her FHA loan payment would be $1,452.29. (Note that it is the same as Jack’s payment, even though Diane’s credit score is over 100 points better.) In this case, Diane can now save money by using the conventional loan. The conventional loan has the best pricing from the beginning, and it provides the PMI cancellation benefits mentioned in the previous post.

With this example, one can definitely see how FHA loans do not have the same impact when it comes to the interest rate, mortgage insurance, and monthly payment versus conventional loans. Even with such a large gap between the credit scores (680 versus 795), the payment on the FHA loan is the same.

Ultimately, every client situation is unique. For some borrower circumstances (e.g., self-employed, buying a condo, high debt to income ratio, etc.), we may recommend one loan option because the buyer has a better chance to win approval, even if the payment winds up being slightly higher.

Do you know someone planning to buy a home in Georgia?  If they have questions, connect them with me.  I love helping people understand their mortgage options and helping them determine the best approach to financing a home purchase.

Should I Refinance Now?

June 20, 2019

As recently reported in The Mortgage Blog, mortgage interest rates have dropped to their lowest level in over two years.  The last time rates were consistently this low was just before the 2016 Presidential election.  For people who purchased homes since then, it may make sense to refinance now.  So how do you decide if a refinance is right for you?

I read one article from a major think tank stating you should refinance for a rate that is a specific amount lower than your current rate.  I believe that is a bit simplistic and you should crunch numbers in more detail.  I recommend comparing the financial benefits against the cost of refinancing – the total amount you can save each month versus the refinance cost.

With a rate / term refi, you will save by lowering your monthly interest payments and, possibly, by lowering or eliminating private mortgage insurance (PMI) payments.  I recommend you focus on the dollar savings.  A 0.5% interest rate change on a $100,000 loan will save you much less per month than the same interest rate change on a $400,000 mortgage.  Eliminating or reducing PMI payments can provide significantly lower monthly payments.  To eliminate PMI, you must must have 20% equity.  Perhaps your home’s value has increased since you bought it.  You can capture this higher value as equity in the new loan using a new appraisal value.  If the appraisal shows you have greater equity, even if it’s less than 20%, you may see your PMI payment reduced, perhaps substantially.

How do I analyze the savings?  I estimate a new monthly payment based on the lower interest rate and potential PMI changes and compare this rate versus their current payment.  Then I divide the refi closing cost by the monthly savings to get a “break even” point.  If the monthly savings break even on the closing costs in three years or less, I typically recommend that the client pursue the refinance.  Why three years?  It seems most people have a general idea of their plans for the next three years or so.  Anything further than that becomes a little murkier.  I’m currently working with a client who has a $335,000 loan.  I estimate a refinance will save her $150 per month and will “break even” in about 22 months.  That seems like a wise financial move to me.

 

Another option to consider is a cash out refinance.  Is there a home project you want to do?  Perhaps a kitchen or bathroom renovation?  I have clients using their home equity and lower interest rates to take cash out for a project, and still have the same payment (or even a better payment) than they have now.

Do you know someone who bought a Georgia home in 2017 or 2018?  Ask them what they would do with an extra $100 per month.  Then refer them to me.  I’ll run the numbers to determine whether refinancing is a wise move.

 

Interest rates move lower

June 18, 2019

Interest rates/Mortgage rates (same thing) moved to a two year low earlier in the month. While rates have since rose a bit, they are much lower than the start of the year.

Rates are well over a half point better since the start of the year. This decrease is beneficial for two reasons. First, it is helpful for those out looking to buy a home right now. Let’s say someone was looking to get a loan for $250,000. With the improvement in rates, a buyer can now get a loan for $265,000 and have the same payment. More buying power!

The other is for existing home owners. The Chief Economist at Freddie Mac said with rates dipping below 4%, “there are over $2 trillion of outstanding residential loans eligible to be refinanced – meaning the majority of what was originated in 2018 is now eligible”

So… should I refinance? A couple of questions you can ask yourself:

  1. Did I purchase a home in 2018? If yes, then rates are definitely lower than when you bought. It would be worth looking into what a new payment could be with a lower rate.
  2. Are current 30 year fixed rates of at/below 4% better than a half a point or more than your current rate? If yes, then it is worth looking at the numbers.
  3. Considering taking some equity out for a home project? I am working with several clients doing a cash out refinance. With the drop in rates, these clients are getting a lower rate, cash out for home maintenance, and keeping a similar payment to what they are making now.

Do you fit into any of those questions? If yes, it might be time to review the numbers for a potential refinance. If you are a homeowner in the state of Georgia, contact me today! In a short phone call, we can decide if the time is right for a refinance. If rates aren’t low enough for it to make sense, we can set a target rate and I’ll contact you when rates move lower. It is that easy. If nothing else, it is worth inquiring to make sure you don’t miss out on this drop in mortgage rates!

Trade wars and mortgage rates

May 14, 2019

Last week was to be the culmination of negotiations between the US and China about a trade deal. Then came some finger pointing, blaming, and honestly tactics you see as negotiations come to an end. What is all of this doing to the market? I’m glad you asked!

Stocks were all over the place last week and this week… down 500 points to open one day only to rebound and finish the day flat… down a few hundred points… down over 600 points Monday… up 350 points as I write this post. Stocks are all over the map.

Brace yourselves!

Mortgage rates are in a similar position. The talk toward the end of the year (slowing economy, trade wars, bad economic news) pushed mortgage rates lower. In fact, rates are well over a half a point lower today than they were this time last year. The many months of tariffs and speculation pushed stocks lower and rates higher.

What happens with the trade negotiations:

  • If a trade deal is reached, one would expect stocks to rebound back to their all-time highs. Obviously this depends on the final details of the trade agreement, but overall expect to see rates get a little worse.
  • If both sides walk away from the negotiating table, then expect stocks to get worse and mortgage rates continue to improve.

What to do? If considering a refinance, this is a good time to move forward. Mortgage rates are as low as they’ve been in over a year. If considering a refinance to lower one’s rate OR take equity out of a home, there hasn’t been a better time in quite some time to do it. If you’ve been sitting on the fence about buying a home hoping rates could go lower, this angle is trickier. On the one hand, sure, mortgage rates could improve should trade negotiations fail. On the other hand, rates were much higher than they are now when stocks were at all-time highs. If a trade deal is finalized, we could see stocks jump back up to or surpass the all-time high. If that happens, expect mortgage rates to rise. It’s no coincidence that mortgage rates improved towards the end of 2018 as stock values fell. The same will happen should stocks take off again.

With rates sitting as low as they’ve been in over a year, now is the time to take advantage of them whether you are looking to purchase or refinance. If you are in need of a mortgage in the state of Georgia, contact me today. I can have you ready to move forward on a purchase or refinance is a little over 10 minutes. It’s that easy!

Home Sales Sentiment on the Rise

May 1, 2019

Lower than expected mortgage interest rates in the first four months of 2019 have helped drive Fannie Mae’s Home Purchase Sentiment Index (HPSI) to its highest level since June 2018.  Economists and experts have predicted higher mortgage rates for the last few years.  Rates trended higher in 2018 until the stock market volatility happened in November.  Then interest rates declined to below 4.5% and have stayed there for the last few months.  Lower interest rates occurring when potential home buyers expected higher rates translates to great news for home buyers.

HPSI jumped 5.5 points in March to the highest level since last June.  Survey responses considering now a “good time to buy” rose 7% while responses considering now a “good time to sell” rose 13%.  And the study shows that more consumers expect interest rates to decrease further.

Doug Duncan, senior vice president and chief economist at Fannie Mae stated, “The results further corroborate the positive effect of falling mortgage rates on affordability, which we expect will help support a rebound in home sales.”  Duncan further noted, “job confidence…also continues to support housing sentiment, while income growth perceptions firmed from both prior month and year-ago levels, potentially supporting an uptick in housing demand.”  Ultimately, lower interest rates, job confidence, and growing income expectations are fueling the current housing market.

Personally, I am seeing more interested buyers and homes for sale than I have seen since 2016.  That is a great thing.  Ultimately, with the lower rates and positive overall economic news, now is a great time to buy or sell a home.

Do you have a friend who complains about high rent and an inattentive landlord?  Tell her that now is a great time to fire her landlord and start building equity in her own home.  Then have her call me.  We at Dunwoody Mortgage will deliver outstanding mortgage experience along with these great low mortgage rates.

 

 

Mortgage rates rise again

October 16, 2018

Mortgage rates are on the rise (from the dead?!? 🎃🎃🎃Happy Halloween! 🎃🎃🎃) again in the month of October. Mortgage rates jumped sharply to yearly highs and to levels not see in over seven years. Mortgage rates for a 30 year fixed loan are nearing 5%. What is going on!?!

Mortgage rates rising can be scary!

A year ago, mortgage rates were just under 4%… that is about a full point lower than they are today. I know what a lot of people think… “it is because of the Federal Reserve raising rates.” Not exactly.

The Federal Reserve raised rates three times so far this year at 0.250% each time. That means the Federal Funds Rate is up 0.750% on the year, but mortgage rates are up almost 1%. Why the difference?

  • the Federal Funds rate directly impacts the rate on second mortgages, car loans, credit card rates, etc.
  • bond values – specifically mortgage backed security bonds (or MBS bonds)- impact rates for first mortgages. As these bond values decrease, mortgage rates increase.

That is what we’ve seen this year. Stocks are up on the year, the economy is better, and MBS bond values are down… meaning, higher mortgage rates. Remember the reason we saw all time historic lows for mortgage rates was two-fold.

First, the economy went through the Great Recession. In this environment, investors move money out of stocks and into bonds. The more money into bonds mean those values go up, and mortgage rates go down. As the economy improved, more money is going into stocks and out of bonds (bond values drop and mortgage rates rise).

Second, the Federal Reserve purchased bonds (quantitative easing or QE) to help push rates down to stimulate the housing market. The economy is now doing well, the Federal Reserve ended QE, and the Feds are now selling off some of the bonds they bought during QE. All of the factors pushing rates to historic lows are gone, and the current environment on rates is pushing them up. This trend doesn’t look like it will change anytime soon.

What can we expect? Earlier this year, mortgage rates jumped 0.75%, but recovered about half of those losses. We can expect to see some market fluctuations, and possibly some positive improvements in mortgage rates. Those looking for rates to get below 4% again? Those days are long behind us now, and probably not returning anytime soon.

Worried about rates going up even more? Considering buying a home but waiting for the right time? If you are buying in Georgia, contact me today. Let’s talk about what buying a home would look like for you, and see how the current dynamics in play will impact your next home purchase.

Feds raising rates again?

June 12, 2018

This week the Federal Reserve meets again with the prospects of another hike in the Federal Funds Rate. While there seems to be positive sentiment for an increase, the excitement for an increase is lower than it was a few weeks ago. There are concerns in the markets with events overseas, increased prices in oil, and a sluggish first quarter of economic growth in the US.

If the Fed raises rates, it would be the seventh increase within the past 30 months. That said, rates would still be well below where they were at the start of the recession. Whether they raise rates or not, analysts will be watching carefully for the Fed’s statement which will be released on Wednesday along with the rate decision. This statement may give us a clue of what the Fed is thinking about rate increases for the rest of the year and perhaps even into next year. A major question to answer will be at what level will they consider rates “normalized.”

In terms of mortgage rates, the last several times the Feds have raised the Federal Funds Rate, mortgage rates have either improved or at least stayed the same. Why? The higher the Federal Funds Rate, the more inflation is kept in check. Since mortgage rates hate inflation, this can help push mortgage rates down. Considering mortgage rates have increased by 0.750% this year, any relief would be welcomed. So don’t worry about hearing the Feds are raising rates because that may actually help mortgage rates improve.

Looking to get prequalified to buy a home in Georgia? Contact me today today and I can help you toward owing your new home!

How Government Policy Impacts Mortgage Rates

February 20, 2018

Mortgage interest rates continue rising.  Other recent blog posts have covered the impacts of inflation, the Federal Funds rate, and stock market influences on mortgage rates.  Another major influence on mortgage rates is government policy. 

In 2008, the Federal Reserve implemented a program called “quantitative easing” (QE).  The Fed created money to buy securities like mortgage backed securities and public bonds from banks.  This new money increased bank reserves.  The idea is that the new cash would motivate banks to lend more money.  In buying new assets, stock prices would rise, and interest rates would fall, thus boosting investment further.  Given the trillions of dollars of assets purchased, it’s logical to assume that interest rates on all types of debt are lower than they would have been without QE.

The Fed ceased QE security purchases in October 2014.  A government policy used to keep rates low ended, and experts wondered if mortgage rates would increase.  But rates stayed near their historic lows until November 2016.  Rates rose quickly after the election by almost a full percentage point, and then slowly retreated over most of 2017.

In October 2017, the Fed began “normalizing its balance sheet” by selling its securities holdings – selling the bonds purchased in QE.  Experts predicted this policy would have the reverse effect of QE:

·       Bond price decreases due to increased supply (as the Fed sells its holdings).

·       Falling bond prices lead to increases in bond yields, which translates to rising interest rates.

And that appears to be happening.  From a lender’s perspective – QE was great.  I loved quoting interest rates less than 4%.  And now it’s frustrating and stressful to see interest rates rising and continuing higher.  But it makes sense given the broader economic and government policy environment.

It is impossible to accurately predict where mortgage rates will go.  Sudden changes in government policy, international relations, etc. can cause mortgage rates to change direction.  Given that caveat, it appears likely that mortgage rates have truly left the historic low levels of the last few years and will likely not return there anytime soon.  I think it is logical to expect rates to continue rising for the short term.

So, if you know someone in Georgia who is considering a home purchase, it may be a good financial move to pull the trigger before rates go much higher.  Refer that someone to me and we can explore their loan options together.  We at Dunwoody Mortgage offer competitive rates in this changing environment, and as a small company, we can go directly to our executives to work out the best pricing “deal” possible.  In addition to competitive rates, we consistently deliver outstanding service to get home buyers to closing on time.