Rent-to-Own Real Estate: The Benefits and Risks for Home Buyers

Rent-to-own real estate may sound like a dream come true. Under the best circumstances, everyone benefits: Sellers collect rent and have a purchase commitment from the buyers, and the buyers can move in right away.

In addition, credit score problems or other financial issues that could hamper a buyer’s ability to get a mortgage matter much less in a rent-to-own agreement than when you’re buying a house right out.

Either way, though, buying a home is still a major financial commitment. While rent-to-own real estate contracts may not be traditional, they’re not necessarily always less complicated than negotiating on a purchase price and getting a loan.

You may not need to come up with a big down payment or have the best credit score to enter into a rent-to-own agreement, but still, this type of contract isn’t always easy to manage.

The key to a smooth transaction is ensuring that you understand the entire process. Here’s what you need to know about rent-to-own homes, as well as the risks involved for buyers.

Why choose a rent-to-own agreement?

Ordinarily, sellers don’t like being landlords. They prefer to get their money in one lump sum and avoid dealing with tenants.

Rent-to-own homes are more common when there is a downturn in the real estate market and numerous homes on the market are vacant. Under a rent-to-own plan, the seller can lock in a price before the market drops further.

But it can be a great choice for tenants, too. While leasing can be a great option, you might be tired of looking for homes to rent. In fact, maybe you’re finally ready to buy that forever home.

However, the high recent purchase price on homes in your area may seem daunting, and you might know that you can’t afford a hefty down payment. This is when a rent-to-own contract might work for you.

Terms of rent-to-own real estate

Always read your contract closely and be sure you can handle the terms. The rent-to-own real estate contract should include the home price, the cost of rent, and the deadline that establishes when you should exercise your option to buy.

It should specify what portion of the rent payment is credited toward the home purchase—or if you need to write two checks each month, for the rent and for the home payment—and under what circumstances the contract can be voided.

You should make certain that there is no language allowing the landlord to evict you for a minor infraction after you have made a substantial financial investment.

It’s worth the expense to have an experienced real estate attorney look at your lease-option contract to make sure you are protected.

When the agreed-upon lease option expires, the tenants will get the chance to buy the house.

Most of the money the tenants have invested in the house is going towards the purchase price, so if they are able to qualify for a home loan, they can be in a good place to buy the house.

If, however, they aren’t able to swing a home loan, and can’t afford the house, they could be out more money than they would be if they had simply been renting during the period.

Renting to own may at first seem like a lease agreement with a pot of gold at the end.

However, if you’re not careful, the deal could go south, and you could end up in big financial trouble. Don’t let your excitement over becoming a homeowner keep you from doing your homework.

Rent-to-own home fees

There are extra fees when it comes to rent-to-own properties, including an option fee and maintenance fees.

The option fee is likely to cost between 1% and 5% of the purchase price. Tenants also can expect their rent to total slightly more than the market rate during the lease.

Usually, all or part of the option fee will be set aside as a down payment. While the home is being rented, the landlord retains ownership but often requires the tenant to assume responsibility for maintenance.

Remember that maintenance on a house can be expensive, so consider carefully what state the house is in before agreeing to a rent-to-own property.

Know the risks of rent-to-own real estate

Buyers can get plenty of benefits out of rent-to-own agreements—but not without some big potential roadblocks.

In many cases, buyers are counting on being able to rebuild their damaged credit rating while living in the rent-to-own home and paying above-market rent.

To benefit, they must be able to get their finances in order and qualify for a home loan before their lease option expires.

Should the market drop significantly, the buyers/renters may end up owing a lot more on a house than it’s worth. It will also be harder to move out should their lifestyle change.

Leasing with an option to buy can be a good financial tool if you know what you’re doing. You could make plans for buying a house without needing to qualify for a home loan or ponying up a hefty down payment.

Make sure that before you go the rent-to-own real estate route, you talk to a lender or mortgage broker to make sure that you will be able to qualify for a loan.

Updated from an earlier version by Emmet Pierce

Source: realtor.com

Buying a Home With Well Water? Here’s 5 Ways to Maintain It

November 23, 2020 December 1, 2020 by Julia Weaver

Updated on December 1st, 2020

If you’re moving out of the bustling city to a more peaceful and quiet countryside home, chances are you’re buying a home that has a well water system. Most homes in cities access their water via traditional municipal sewer systems. However, millions of homes in rural areas across the US housing market rely on well water to keep faucets flowing – over 15 million, according to the Center for Disease Control and Prevention. While using well water may be new for you, there are many upsides to a well water system, including:

  • Safety: well water, when properly maintained, is perfectly safe to drink and use.
  • Availability: well water is available anywhere, even in rural areas that don’t have access to a municipal water supply.
  • Affordability: well water can be cheaper than paying sewer fees. You’re not hooked up to the local water supply, which means no monthly bill.

If you’re buying a home with well water, it’s ultimately up to you to maintain it. So it’s important to have a thorough understanding of how the well water system works and the preventative care necessary to keep your well and your water at an ideal level of quality. Some homeowners don’t know that their water well systems require service and routine maintenance until it’s too late. Add these five tasks to your home maintenance to ensure your water stays safe and usable.

Blue, two-story home with a water well system

Blue, two-story home with a water well system

1) Test your well water annually

The quality of well water is always changing. While the government doesn’t require annual testing, it’s important to have your well water tested annually to protect those in your household.

The very nature of well water makes it far more susceptible to contamination. It’s important to make sure your well water is safe to drink and use in cooking, cleaning, and bathing. The testing process looks for things like bacteria, nitrates, iron, water hardness, manganese, and sulfides. If levels are too high or too low, depending on the substance in question, maintenance can be essential to prevent potential health hazards. If you do notice a change in the color, taste, or smell of your water, make sure to get it tested immediately – even if it hasn’t been a year since the last test. And, if you live in an area affected by flooding, you should have your water tested after every major flood in addition to an annual inspection.

The good news is testing water is both easy and affordable. DIY kits are available at most hardware stores. These products allow homeowners to take a water sample and send it to a third-party lab to be analyzed. Once analyzed, the testing company will provide results and, if necessary, guidance on next steps. 

Or, you can choose to hire a professional. They’ll collect samples from the well, send them to a lab, and provide you with reports on water quality. This can give peace of mind in knowing your water was tested in a state-certified lab. You’ll also have the opportunity to review the results with an expert who will provide next steps.

2) Get your well water system inspected each year

In addition to testing the quality of the water, you’ll also want the well itself professionally inspected once a year if you’re buying a home with a well. Your well water system plays a key role in keeping water clean and usable. If it’s not operating up to standard, it’s easy for problems to arise.

A professional can determine whether your well and your well pump are working properly and diagnose any problems if present. They’ll look for damage or irregularities – such as signs of cracking or settling – which could allow contaminants into your water. An inspector can assess the damage and help you make the necessary adjustments to keep your well working as it should.

Ignoring issues with your well can result in costly problems down the road, like full system replacements. An annual inspection is relatively affordable and can guarantee peace of mind while helping you save on repair costs.

3) Evaluate your water softener

Water hardness refers to the mineral levels in the water. Hard water has high mineral content, while soft water has low mineral content. Due to the nature of a well, well water tends to be hard. Drinking or using hard water in day-to-day cleaning isn’t dangerous. However, there are still side effects to watch out for, such as:

  • Build up around faucets and in tubs, sinks, and toilets
  • Leaving skin dry and itchy
  • Spots and stains on dishes
  • Dingy laundry
  • Slow-draining sinks and tubs
  • Corroded plumbing
  • Reduced appliance lifespan, like washers and dishwashers

Most homes with well water likely require a water softener to avoid the challenges of hard water. This equipment uses salt to neutralize the impact of heavy mineral content. However, maintaining a water softener can require regular replacement of a brine tank. Be sure to check salt levels regularly and replace the tank whenever necessary.

Washing dishes with soap and water

Washing dishes with soap and water

4) Prevent hard water stains

If your new home has hard water, you’ve probably noticed the rusty orange stains in your porcelain sink, tubs, toilets, and residue on your laundry and dishes. This is from the high iron content Hard water stains are caused by the high iron content found in well water. And although iron is typically not a safety concern, hard water stains can be a challenge to remove if not addressed immediately. 

For those who do not have a water softener, it’s best to prevent hard water stains at the source. After each use, wipe down the surfaces of your tub and shower. Regularly clean sinks and toilets to prevent buildup. If hard water is damaging your clothing, let laundry sit in a vinegar solution prior to washing. Place a cup of vinegar in your dishwasher prior to starting a cycle to avoid hard water stains on your clean dishes. Vinegar and baking soda can work wonders on existing hard water stains, as can numerous hard water-specific cleaning products.

Consider incorporating a water softening system into your home to significantly reduce stains, and perhaps eliminate them altogether.

5) Keep your well water tasting and smelling fresh

Most of the time, wells don’t result in dangerous drinking water, unless bacteria is present, but water can smell or taste different.

A filtration system can eliminate minor impurities, including hydrogen sulfide – a harmless substance with no flavor but can smell like rotten eggs. However, if filtration isn’t keeping water clear and odor-free, there may be larger issues involved with your water well system that a professional will need to address.

If you’re buying a home with well water, be sure to do some research about the water in your area, and any regulations for the area where you’re buying.

Source: redfin.com

Tony Gonzalez trims price of Beverly Hills home to $28 million

For anyone doing some last-minute Christmas shopping, NFL legend Tony Gonzalez and his wife, former “Beat Shazam” DJ October Gonzalez, just trimmed the price of their Beverly Hills mansion to $28 million.

The couple paid $7.1 million for the property in 2016 and razed the 1950s traditional-style house immediately, erecting a Georgian-inspired manor in its place over the next four years. It was finished last winter, and they listed it for sale at $30 million over the summer.

At 12,855 square feet, the showplace is nearly three times the size of the house it replaced. In addition to the two-story mansion, there’s a swimming pool with a spa, a pool house with a gym, a subterranean garage with room for eight cars and a lighted tennis court.

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Offered fully furnished, the floor plan kicks off with a dramatic 24-foot entry. Farther in, common spaces include a study with built-in cabinetry and a chef’s kitchen with a large marble island. Walls of glass line the living room and dining area, and the custom pub adds floor-to-ceiling wine storage and an eye-catching limestone fireplace. For those home-schooling during the pandemic, there’s also a full-size classroom.

The owner’s suite sits upstairs. One of seven bedrooms and 12 bathrooms, it expands to a massive balcony overlooking the patios and lawns in the backyard. The grounds cover about three-quarters of an acre.

An Orange County native, Gonzalez was a standout at Huntington Beach High School before attending UC Berkeley, where he played football and basketball. During his prolific 17-year career in the NFL, the 44-year-old tight end played for the Kansas City Chiefs and Atlanta Falcons, making 14 Pro Bowl teams and being inducted into the Pro Football Hall of Fame in 2019.

Michelle Graci of Rodeo Realty Beverly Hills and Bob Hurwitz of Hurwitz James Co. hold the listing.

Source: latimes.com

613: Close 78% of Expired and Withdrawn Listing Appointments with Josh Gossard

When Josh Gossard goes to a listing appointment, he knows there’s a good chance he’ll get the listing. That’s because Josh closes 78% of his listing appointments successfully. How? Listen to today’s Real Estate Rockstars and find out! Not only does Josh share some of his best scripts, he covers a proven price-reduction strategy – something that’s absolutely crucial to have when taking on expired listings. If you want to get more listings, don’t miss this episode!

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Can We Buy a $400,000 Business? (Hour 2)

Retirement, Career, Business, Debt

As heard on this episode:

  • Christian Healthcare Ministries: https://bit.ly/2XBZfE3 
  • Churchill Mortgage: https://bit.ly/2JcfkGy 

Sign Up for a FREE trial of Ramsey+ TODAY: https://bit.ly/31ricKt 

Tools to get you started: 

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Source: daveramsey.ramsey.libsynpro.com

7 Costly Health Problems That Strike After Age 50

Senior woman with injured leg
eakkachai halang / Shutterstock.com

As we age, health issues often creep up that threaten to tarnish our golden years. Treating some of these diseases and conditions can be expensive.

Fortunately, there are ways to cut the cost of such care. Following are some health conditions that tend to strike after age 50 — and how to cut the cost of care if you are diagnosed with them.

Arthritis

Arthritis pain
New Africa / Shutterstock.com

Arthritis strikes about 54.4 million Americans, according to the Centers for Disease Control and Prevention. The CDC adds that in 2013, adults with arthritis on average paid an extra $2,117 in medical costs.

How to cut costs. The Arthritis Foundation has a webpage devoted to ways to trim the tab for arthritis care.

Osteoporosis

Broken bone
Laura v.d. Broek / Shutterstock.com

Around 54 million Americans have low bone density or osteoporosis, according to the National Osteoporosis Foundation. Among women over the age of 50, 1 in 2 will break a bone due to the disease. Among men that age, the figure is 1 in 4.

How to cut costs. One study found that osteoporosis care cost the nation $22 billion in 2008. Prescription medications often are used to treat this condition, so ask your doctor about using less costly generic drugs.

Weight-bearing exercise — such as lifting weights, walking or running, and activities such as tennis — is also a great way to build bone density, and it costs little or nothing to do.

Finally, relatively cheap vitamin D supplements can help your body use calcium and strengthen bones. Ask your doctor if they are right for you.

Diabetes

Diabetes
Vladimir Mulder / Shutterstock.com

More than 34 million Americans have diabetes. Your risk for the disease increases as you age; more than one-quarter of adults ages 65 or older have diabetes.

Diabetes costs the nation $327 billion annually, according to the American Diabetes Association. Patients diagnosed with diabetes bear the brunt of those costs. The Mayo Clinic has noted that the price of insulin for patients is higher in the U.S. than in other countries.

How to cut costs. Getting tested early for diabetes is the key to keeping care costs under control. As the disease progresses, it can become more dangerous — and significantly more expensive to treat.

If you have diabetes, your costs will be lower if your health insurance covers your treatments. The ADA’s Diabetes Forecast magazine has some tips for persuading your insurer to help pay for diabetes devices and supplies.

Finally, a healthful diet and regular exercise can help you control diabetes. In some cases, your efforts might be so effective that you no longer need expensive treatment. The ADA has tips for food and exercise on its website.

Obesity

jakub-cejpek / Shutterstock.com

As the years roll on, our waistlines expand. More than one-third of adults 65 and older are obese, according to a 2007-2010 survey report from the Centers for Disease Control and Prevention. The CDC estimated in a 2009 report that an obese person spent 42% more for health care — an average of $1,429 per person — than people of normal weight.

How to cut costs. Slimming down significantly reduces your risk of being diagnosed with many costly health problems, including diabetes, heart disease, cancer and osteoarthritis.

Switching to a healthful diet and starting an exercise program are inexpensive ways to avoid the costs associated with obesity.

Heart problems

Heart
siam.pukkato / Shutterstock.com

Simply put, heart disease is the leading cause of death for both men and women in the U.S.

This condition encompasses many problems related to atherosclerosis, a narrowing of the arteries due to a buildup of fats, cholesterol and other substances. Heart disease cost the nation $219 billion from 2014 to 2015, according to the CDC.

How to cut costs. Several medical conditions are closely related to a higher risk of developing heart disease. They include:

  • High blood pressure
  • High LDL cholesterol
  • Smoking

A better diet and regular exercise can help you reduce your blood pressure and improve your cholesterol readings. And quitting smoking is among the best ways to both improve your health and save some money.

Declining oral health

Dentist
Dmitry Kalinovsky / Shutterstock.com

About 26% of Americans ages 65 and older have eight or fewer teeth, according to the CDC. That’s a sobering reminder that our oral health begins to slip as we age. The CDC notes that conditions such as severe periodontal disease and oral and pharyngeal cancer primarily affect older adults.

Treating such conditions can be expensive. The cost of dental expenditures reached $136 billion in 2018, according to the American Dental Association.

How to cut costs. Regular visits to the dentist are the best way to catch conditions early, when they are less costly to treat. The ADA notes that while some people should see their dentist just once or twice annually, others may require more frequent visits. Consult with your dentist to find the right schedule for you.

Dental visits can be costly if you do not have dental insurance. The ADA website offers help finding more affordable care.

Shingles

Shingles
one photo / Shutterstock.com

While this illness is likely to be far less costly than others on the list, it deserves attention because it is so prevalent in the over-50 demographic. In fact, half of all cases of shingles are diagnosed in people 60 and older.

And complications related to shingles — from blisters to an ongoing type of pain called post-herpetic neuralgia, or PHN — can take a toll on your wallet.

How to cut costs. Fortunately, there is an easy and affordable fix for shingles: vaccination. As we have reported a new vaccine is more than 90% effective in preventing shingles in folks age 50 and older. For more, check out “Over 50? The CDC Says You Need These 4 Vaccines.”

Disclosure: The information you read here is always objective. However, we sometimes receive compensation when you click links within our stories.

Source: moneytalksnews.com

How to plan a trip Italy’s Amalfi Coast without breaking the bank

Where to splurge and where to save on Italy’s Amalfi Coast


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Source: thepointsguy.com

Is Cellphone Insurance Worth It? Here’s How You Tell

Woman upset about cracked cellphone
Photo by Vera Petrunina / Shutterstock.com

Smartphones can feel more like a necessity than a luxury. The thing is, smartphones can also be expensive. This is especially true if you’re into the flagships from big names like Apple and Samsung.

Smartphones are also notoriously not the most rugged products. A small mishap could cause damage that is expensive to fix or, worse, may require you to replace your phone altogether.

Protecting yourself from these high unforeseen expenses via device insurance might seem like the smart thing to do, but is cellphone insurance really worth it? Let’s take a look.

How much does cellphone insurance cost?

To determine if cellphone insurance has any real value, we must first look at its costs. Most cellphone carriers sell insurance through a third-party (usually Asurion or Assurant).

Let’s take a quick look at the major carriers to see just how much you might expect to pay for cellphone insurance.

AT&T

AT&T offers two tiers of device protection. At $8.99 per month, you’ll get basic protection that includes up to two claims a year, next-day replacement and a $49 deductible on screen repairs.

For $15 per month, you’ll have access to three claims per year, same-day replacement, unlimited battery replacement, a $29 deductible for screen replacements and a few extra perks.

Verizon

For $14 per month, Verizon’s cellphone insurance plan provides you with same-day replacement, a $29 deductible for screen repairs, battery replacement and security/ID protection features.

T-Mobile

T-Mobile’s Protection 360 starts at $7 per month, though you can expect to pay significantly more for higher-end phones. It includes unlimited screen replacements, early upgrades and AppleCare (if applicable).

Is cellphone insurance worth the cost?

It might depend on how clumsy you are, but keep in mind how much you’re actually paying compared with what you’re getting back even if you do make claims.

Screen replacement is probably the most common issue. Between the deductible that goes along with these insurance plans plus the monthly premium, it often works out to about break-even compared with forgoing insurance and paying completely out of pocket for the replacement.

Typically, you’d have to make at least two claims per year to make cellphone insurance worth it, and if you need to do that, there are probably some habits you should consider changing.

Cellphone insurance is probably not very worthwhile, considering that basic care can help you avoid the need to replace or repair your device.

Get a good strong case for your phone, and make sure not to put your device in risky situations.

If you’re still interested in device insurance, take a look at some cellphone plans from the carriers we mentioned above.

Disclosure: The information you read here is always objective. However, we sometimes receive compensation when you click links within our stories.

Source: moneytalksnews.com

People on the move: Jan. 29

LucasAllen, Austin Texas.jpg

Dallas-based multi-channel mortgage lender Open Mortgage has created the new role of senior vice president of forward operations. Lucas Allen has been hired to oversee “all forward loans, including managing the appraisal, disclosures, processing, underwriting, and closing and funding teams,” according to the company’s announcement. Previously, Allen was vice president and community operations director at Movement Mortgage. He has also spent time at Sutherland Global Services, Accenture, and Goldman Sachs’ Senderra. Open Mortgage has nearly 400 employees with 65 branches in 22 states, including many third-party originators. It is licensed in 46 states and the District of Columbia.

Source: nationalmortgagenews.com

How low can we go? 30-year mortgage rate charts tell the story

30-year mortgage rates chart: Where are rates now?

If you look at a 30-year mortgage rate chart, there’s a trend you
can’t miss: Today’s
rates are low.
Really low.

But remember, these are just averages. Your mortgage rate might be higher or lower than the ‘typical’ borrower.

Check your mortgage rates today (Jan 31st, 2021)


In this article (Skip to…)


Mortgage rate trends chart: Where are rates
headed?

The coronavirus pandemic pushed mortgage rates to rock
bottom, and most experts think they can’t go down much further.

If anything, mortgage rates are likely to go up in the
coming months and years, as COVID recovery progresses and the economy begins to
improve.

Borrowers shouldn’t expect dramatic rate spikes.

But unlike 2020, when mortgage rates hit record lows over and over, we’re likely to see more upward movement for 30-year mortgage rates and other home financing rates. 

Those who are ready to buy a home or refinance now
shouldn’t wait on rates to fall; it’s not likely to happen.

But if your home buying or refinancing plans are further
down the road, you shouldn’t worry about any huge rate increases in the near
future. Affordable financing is here for the long haul.

Verify your new rate (Jan 31st, 2021)

Average 30-year mortgage rates since 1972

For some perspective on today’s mortgage interest rates,
here’s how 30-year rates have changed from year to year over the past four
decades.

Year Average 30-Year Rate Year Average 30-Year Rate Year Average 30-Year Rate
1972 7.38% 1988 10.34% 2004 5.84%
1973 8.04% 1989 10.32% 2005 5.87%
1974 9.19% 1990 10.13% 2006 6.41%
1975 9.05% 1991 9.25% 2007 6.34%
1976 8.87% 1992 8.39% 2008 6.03%
1977 8.85% 1993 7.31% 2009 5.04%
1978 9.64% 1994 8.38% 2010 4.69%
1979 11.20% 1995 7.93% 2011 4.45%
1980 13.74% 1996 7.81% 2012 3.66%
1981 16.63% 1997 7.60% 2013 3.98%
1982 16.04% 1998 6.94% 2014 4.17%
1983 13.24% 1999 7.44% 2015 3.85%
1984 13.88% 2000 8.05% 2016 3.65%
1985 12.43% 2001 6.97% 2017 3.99%
1986 10.19% 2002 6.54% 2018 4.54%
1987 10.21% 2003 5.83% 2019 3.94%

Can 30-year mortgage rates go lower?

The short answer is that
mortgage rates can always go lower. But you shouldn’t expect them to.

Mortgage rates operate in
their own market. Lenders have control over the rates they set, and many are
content to keep rates (and profit margins) a little higher.

This helps stem the tide of
home buyers and refinancers and keep their workload manageable.

In addition, mortgage rates
have to answer to end investors.

When rates fall too rapidly, investors start paying less for mortgage-backed securities (MBS) — the financial instruments that drive mortgage rates.

This is because investors assume homeowners will refinance, paying off their loans faster and reducing the returns on interest.

Less money from investors,
in turn, means lenders have to keep their rates a little higher, or charge
borrowers bigger fees for lower rates.

So don’t expect mortgage
rates to keep falling in lock-step with the rest of the market.

They could push lower, but
they’re just as likely to stay stagnant. And sooner or later, they’re bound to
rise again.

Verify your new rate (Jan 31st, 2021)

Historical perspective: Banner years for mortgage interest rates

The long-term average for mortgage rates is about 8%. That’s according to Freddie Mac records going back to 1971.

But mortgage rates can move
a lot from year to year — even from day to day. And some years have seen much
bigger moves than others.

Here’s a look at just a
few, to show how rates often buck conventional wisdom and move in unexpected
ways.

1981 — The all-time high

1981 was the worst year for mortgage interest rates on
record.

How bad is bad? The average
mortgage rate in 1981 was 16.63%.

  • At 16.63% a $200,000
    mortgage has a monthly cost for principal and interest of $2,800
  • Compared with the long-time
    average that’s an extra monthly cost of $1,300 or $15,900 per year

And that’s just the average – some people paid more.

For the week of Oct. 9, 1981, mortgage rates averaged 18.63%, the highest weekly rate on record, and almost five times the 2019 annual rate.

2008 — The slump

2008 was the final gasp of the mortgage meltdown.

Real estate financing was
available in 2008 for 6.03% according to Freddie Mac.

  • The monthly cost for a
    $200,000 mortgage was about $1,200 per month, not including taxes and insurance

Post 2008, rates declined
steadily.

2016 —An all-time low

2016 held the lowest annual
mortgage rate on record going back to 1971. Freddie Mac says the typical 2016
mortgage was priced at just 3.65%.

  • A $200,000 mortgage at
    3.65% has a monthly cost for principal and interest of $915
  • That’s $553 a month less
    than the long-term average

Mortgage rates had dropped lower in 2012, when one week in November
averaged 3.31%. But some of 2012 was higher, and the entire year averaged out
at 3.66% for a 30-year mortgage.

2019 — The surprise drop-off

In 2018, many economists
predicted that 2019 mortgage rates would top 5.5%. That turned out to be wrong.

In fact, rates dropped in 2019. The
average mortgage rate went from 4.54% in 2018 to 3.94% in 2019.

  • At 3.94% the monthly cost for a $200,000 home loan was $948
  • That’s a savings of $520 a month – or $6,240 a year – when
    compared with the 8% long-term average

In 2019, it was thought
mortgage rates couldn’t go much lower. But 2020 proved that thinking wrong
again.

2021 — The lowest 30-year mortgage rates ever

Rates plummeted in 2020 in response
to the coronavirus pandemic. 

By July 2020, the 30-year fixed rate fell below 3% for the first time — and it kept falling to a new record low (in January 2021) of 2.65% for a 30-year fixed-rate mortgage. 

  • At 2.65% the monthly cost for a $200,000 home loan is $806 a month not counting taxes and insurance
  • You’d save $662 a month, or $7,900 a year — compared to the 8% long-term average

Due to the Federal Reserve’s promise of low interest rates post-COVID, mortgage rates are expected to stay low for years.

But as we’ve seen in the past, predictions about mortgage
rates are often wrong.

That’s why when rates are good, experts recommend locking one in instead of waiting for potentially lower rates in weeks or months.  

Factors that affect your mortgage
interest rate

For the
average homebuyer, tracking mortgage rates helps reveal trends. But not every
borrower will benefit equally from today’s low mortgage rates.

Home
loans are personalized to the borrower. Your credit score, down payment, loan
type, loan term, and loan amount will affect your mortgage or refinance rate.

It’s
also possible to negotiate mortgage rates. Discount points can provide a lower
interest rate in exchange for paying cash upfront.

Let’s
look at some of these factors individually:

Credit
Score

A credit
score above 620 will open more doors for lower interest rate loans, though some
loan programs such as USDA, FHA, and VA loans can be available to sub-600
borrowers. 

If
possible, give yourself a few months or even a year to improve your credit
score before borrowing. You could save thousands of dollars through the life of
the loan. 

Down
Payment

Higher
down payments can shave your borrowing rate.

Most
mortgages, including FHA loans, require at least 3% or 3.5% down. And VA
loans and USDA loans are available with 0% down payment.

But if
you can put 10%, 15%, or even 20% down, you might qualify for a conventional
loan with low or no mortgage insurance and seriously reduce your housing costs.

Loan
Type

The type
of mortgage loan you use will affect you interest rate. However, your loan type
hinges on your credit score. So these two factors are very intertwined.

For
example, with a credit score of 580 you may qualify only for a subsidized loan
such as an FHA mortgage. FHA loans have low interest rates, but come with
mortgage insurance no matter how much money you put down.

A credit
score of 620 or higher might qualify you for a conventional loan, and —
depending on your down payment and other factors — potentially a lower rate.  

Adjustable-rate mortgages traditionally offer lower introductory interest rates compared to a 30-year fixed-rate mortgage. However, those rates are subject to change after the initial fixed-rate period.

So an
initially lower ARM rate could rise substantially after 5, 7, or 10 years.

Loan
Term

In this
post we’ve tracked rates for 30-year fixed-rate mortgages, but 15-year
fixed-rate mortgages tend to have even lower borrowing rates. 

With a
15-year mortgage, you’d have a higher monthly payment because of the shorter
loan term. But throughout the life of the loan you’d save a lot in interest
charges.

At a 3% interest
rate for a $200,000 home loan, you’d pay $103,000 in interest charges with a
30-year mortgage paid off on schedule. A 15-year fixed-rate mortgage would cost
only about $49,000 in interest.

Loan
Amount

Rates on
unusually small mortgages — a $50,000 home loan, for example — tend to be
higher than average rates because these loans are less profitable to the lender.

Rates on
a jumbo mortgage loan tend to be higher, too, because lenders have a higher
risk of loss. Jumbo loans help shoppers buy high-value real estate.

Discount
Points 

A
discount point can lower interest rates by 0.25% in exchange for upfront cash.
A discount point costs 1% of the home loan amount. 

For a
$200,000 loan, a discount point would cost $2,000 upfront. However, the
borrower would recoup the upfront cost over time thanks to the savings earned
by a lower interest rate.

Since
interest payments play out over time, a buyer who plans to sell the home or
refinance within a couple years should probably skip the discount points and
pay a higher interest rate for a while.

Some rate quotes assume the home buyer will buy discount points, so be sure to check before closing on the loan.

Understanding your monthly
mortgage payment

In this
article, we compare monthly payments for a $200,000 home loan at a variety of
interest rates.

Understand
that these examples show only principal and interest — the amount you’re paying
each month toward your loan balance and interest generated.

Overall, your monthly mortgage
payment will be higher than just principal and interest. That’s because there
are other costs bundled in, including:

  • Property taxes —City and county governments levy annual property taxes to pay for public services. These taxes are usually prorated over 12 months and paid to your loan servicer along with your mortgage payment
  • Homeowners insurance — Homeowners insurance premiums average about $1,000 a year. As with property taxes, homeowners insurance premiums can be spread out over 12 months and paid with your mortgage via an escrow account
  • HOA fees — Condos, apartments, and gated communities may charge annual Homeowners Association fees which can be broken down into monthly payments added to the mortgage
  • Mortgage insurance — FHA loans, USDA loans, and conventional loans with less than 20% down payment require the borrower to pay for mortgage insurance. Mortgage insurance costs around 1% of the loan amount each year, although rates vary depending on the loan type and down payment. For a $200,000 loan that would equal $2,000 a year or $166 per month added to the mortgage payment

Collectively,
it’s not unusual for taxes, fees, and premiums to add several hundred dollars
to a monthly mortgage payment.

Closing costs affect the cost
of borrowing, too

Interest
rates have a huge impact on borrowing costs throughout the life of a mortgage
loan, but it’s important not to forget the cost of upfront fees, too.

Closing costs typically add anywhere from 2% to 5% of your loan amount. Closing costs include loan origination fees, discount points, legal fees, appraisal fees, title fees, and more.

Many
first time home buyers don’t know they can negotiate some closing costs such as
the lender’s origination fee. However, many costs are pre-set by third parties
such as attorneys and appraisers.

In some
mortgage markets the home seller will help with closing costs. But it’s up to
the buyer to negotiate this part of the transaction. A Realtor can help.

When
choosing a mortgage, home buyers and refinancers should always consider closing
costs along with interest rates.   

Determine your buying power with
a mortgage calculator

The
charts and graphs on this page show the way 30-year fixed-rate mortgages have
changed over time and continue to change.

To see how today’s mortgage rates affect your borrowing power, use our mortgage calculator that includes PMI and other added costs.

Today’s
historically low interest rates have increased buying power by lowering monthly
payments for borrowers throughout the spectrum.

When to lock your mortgage rate

Keep an eye on daily rate
changes. But if you get a good mortgage rate quote today, don’t hesitate to
lock it in.

Remember, if you can secure
a 30-year mortgage rate below
3% or 4%, you’re paying less than half as much as most American
homebuyers in recent history. That’s not a bad deal.

Verify your new rate (Jan 31st, 2021)

Compare top lenders

Source: themortgagereports.com