What is a home equity loan and how does it work?

Make the most of your home equity

As home values increase, so does the amount of equity available to homeowners.

But home equity isn’t liquid wealth; the money is tied up in your home. To access your home’s value, you either need to sell or take out a loan against the property.

One option is a cash-out refinance, which lets you tap equity and refinance your existing loan, sometimes to a lower rate.

But what if you’re happy with your current mortgage? Another option is a home equity loan, or ‘second mortgage,’ which lets you cash-out without a full refinance. Here’s what you need to know.

Check your home equity financing options (Jan 24th, 2021)


In this article (Skip to…)


What is a home
equity loan?

A home equity loan or ‘HEL’ is
a type of mortgage, often called a ‘second mortgage,’ that lets you draw on
your home equity by borrowing against the home’s value.

Unlike a cash-out refinance, a home equity loan lets you cash-out without touching your primary mortgage loan. So if you already have a great interest rate, or you’re almost finished repaying the original loan, you can leave its terms intact.

A home equity loan can also help homeowners who own their homes outright and don’t want to refinance the entire home value just to access equity.  

How home
equity loans work

Home equity loans are mortgages just like your original home loan. They
are secured by your property, and if you don’t make your loan payments,
you can lose your house to foreclosure. Just like you can with a “regular”
mortgage.

A home equity loan can be
structured to deliver a lump sum of cash at closing, or as a line
of credit that can be tapped and repaid, kind of like a credit card. The second type is known as a
home equity line of credit (HELOC).

If your interest rate is fixed
(this is the norm), you’ll make equal monthly payments over the loan’s term
until it’s paid off.

The fixed rate and payment make
the HEL easier to include in your budget than a HELOC, whose rate and
payments can change over the course of the loan.

A home equity loan can be a good idea when
you need the full loan amount at once and want a fixed interest
rate.

For example, if you wanted to
consolidate several credit card accounts into a single loan, or if you needed to
pay a contractor upfront for a major renovation, a HEL could be a
great choice.

Check your home equity financing options (Jan 24th, 2021)

How much
can you borrow on a home equity loan?

How much cash you can borrow through a home equity loan
depends on your creditworthiness and the value of your home.

To find your possible loan amount, start by subtracting the
amount you owe on your existing mortgage from the market value of your home. For
example, if your home is valued at $300,000 and you owe $150,000 on your
existing mortgage, you own the remaining $150,000 in home equity.

Most of the time you can’t borrow the full amount of equity,
but you may be able to tap 75-90% of it.

In the example above, that means you could likely borrow between
$112,500 and $135,000, minus closing costs.

You could use this money for home improvements, debt consolidation, or to make a down payment on a vacation home or investment property.

Home equity
loan interest rates

When you apply for home equity
financing, expect higher interest rates than you’d get on a first mortgage due
to the extra risk these loans pose for lenders.

Fixed home equity interest rates for borrowers with excellent credit are about 1.5% higher than current 15-year fixed mortgage rates.

Home equity interest rates vary
more widely than mainstream first mortgage rates, and your credit score has
more impact on the rate you pay.

For example, an 80-point difference in FICO
scores can create a 6% difference in a home equity
interest rate.

Home equity lines of credit
(HELOCs) have variable interest rates. This means your monthly payment depends
on your loan balance and the current interest rate. Your payment and rate can
change from month to month.

Home equity loans can have
variable interest rates, but most of the time the rate and payment are fixed.

About home equity lines of credit (HELOCs)

The home equity line of credit, or
HELOC, offers more flexibility than a home equity loan. But it makes
budgeting harder.

HELOCs have a ‘draw period’
in which you’re allowed to tap the loan amount up to your
credit limit. You can withdraw and repay funds as needed during
these first years.

There is a minimum payment —
usually the amount needed to cover the interest due that month. At any given
time, you pay interest only on the amount of the balance you
use.

When the draw period
ends, you can no longer tap the credit line and must repay it over a predetermined number of
years. With its variable
interest rate, your payment could change every month.

Some HELOCs allow
you to fix your interest rate when you enter the repayment period. These are
called “convertible” HELOCs.

HELOCs are ideal loan options for
expenses that will be spread over a longer period of time, or
as a source of emergency cash.

For instance, you might take a
HELOC to serve as an emergency fund for your business. Or you could use it to
pay college tuition twice a year. HELOCs are also great for home improvements
that take place in stages over an extended period of time.

How
second mortgages work

If you’re considering a home equity loan or home equity line of credit, it’s important to understand how these ‘second mortgages’ work.

One important point is that you keep your existing mortgage
intact. You continue making payments on it as you’ve always done.

The HEL or HELOC is a second, separate loan with additional
payments due each month. So you’d have two lenders and two loans to make
payments on. 

Lenders consider second mortgages to be riskier than first
mortgages.

The primary mortgage lender gets paid first if a loan defaults and
the home is sold in a foreclosure. The second mortgage lender — which holds the
HEL or HELOC — may get paid less than it’s owed. Or it may not get paid at all.
(A second mortgage lender is also known as a “junior lien holder.”)

Due to this extra risk, home equity loans charge higher interest
rates than a primary mortgage. A cash-out refinance might come with lower rates.

Home equity loans are also a bit harder to qualify for. You’ll typically need a credit score of at least 680-700 for a home equity loan, as opposed to 600-620 for a cash-out refi.

More
differences between first and second mortgages

Besides the interest rate, there
are a few other distinctions between first and second mortgages. Second mortgages have:

  • Shorter loan terms — Home equity loans and lines of
    credit can have terms ranging from 5 to 20 years, with 15
    years being the most common. The shorter repayment time reduces risk to lenders
  • Smaller loan amounts
    Many first
    mortgage programs allow you to finance 95%, 97%, or
    even 100% of your home’s purchase price. Most home
    equity lenders max out your loan-to-value at 80% to 90% of your equity
  • Lower fees — While some still charge origination fees, HELOC
    lenders, for example, often absorb most or all of
    the fees. Home equity loan fees for title insurance and escrow are usually much
    lower than those for first mortgages.
  • Faster processing — Home
    equity loans usually close much faster than first mortgages. You may get your
    money in a couple of weeks, as opposed to 1-2 months

Also, your second mortgage lender may not require a full appraisal. This could save hundreds of dollars in closing costs compared to getting a first mortgage.

Cash-out refinance vs. home equity loan

Home equity loans and lines of
credit aren’t the only ways to borrow against the cash value of your home.

Some homeowners prefer a cash-out refinance loan, which has a few advantages:

  • One loan — Since cash-out refinancing replaces your existing mortgage while also unlocking equity, you’d have only one mortgage loan instead of two
  • Lower interest rates — Cash-out refinance rates are lower than home equity loan or HELOC rates. In addition, since you’d be replacing your existing mortgage with a new mortgage, all of your home debt could be re-cast at today’s lower interest rates
  • Opportunity to pay off the house early — Shorter loan terms require higher loan payments each month, but they can save a lot in interest charges over the life of your loan. A cash-out refinance offers an opportunity to shorten your current loan term from a 30-year fixed to a 15-year fixed mortgage, for example

Cash-out refinancing isn’t for everyone. If your first mortgage is
almost paid off, for example, you’re probably better off with a second
mortgage.

If your existing mortgage rate is already near today’s rates, your savings from refinancing might not eclipse the closing costs and other borrowing fees. In that case, a second mortgage is probably the way to go.

Check your cash-out refinance options (Jan 24th, 2021)

Other alternatives to home equity loans

If you recently bought or refinanced your home, you probably
don’t have enough equity built up to warrant a second mortgage or a cash-out
refinance just yet.

In this case, you’ll need to wait until your home’s market
value increases and your original mortgage balance decreases, generating enough
equity to qualify for a new loan from a bank or credit union.

But what if you need cash sooner? You may want to consider:

Personal loans

Personal loans do not require backing from home equity. They
are ‘unsecured’ loans, requiring only a high enough credit score and income to
pay back the loan.

Since the loan is not secured against your property as
collateral, interest rates are much higher.

You can find personal loan amounts up to $100,000, but if you
have bad credit or a high debt-to-income ratio, you’ll have limited options.

Applicants with excellent credit histories have more loan
options, but since personal loans require no collateral, they can’t compete
with the low interest rates you’d get on a secured mortgage.

And unlike a mortgage, the interest you pay on a personal loan
is not tax-deductible, even if you use the loan to fund home improvements.

Credit cards

With their annual fees and high
annual percentage rates, credit cards should be a last resort for long-term
borrowers — unless you can get a no-interest credit card and pay it off before
the promotional rate expires.

If a credit card offers a 0% APR
for 18 months, for example, you may be able to keep the card balance until
you’re able to get a second mortgage loan to pay off the card. If you time it
right, you’ll avoid the credit card’s punitive charges.

However, this is a risky strategy. If you don’t have enough equity or a sufficient credit score to qualify for a cash-out mortgage now, it could be difficult to improve your financial situation enough to get one before the credit card promotion expires. This could land you with high credit card debt and no good way to pay it off.

What are
today’s home equity mortgage rates?

As noted above, home equity loan
rates are more sensitive to your credit history than first
mortgages. Rates can also vary more between lenders, which makes it important
to shop for a good deal.

To get an accurate quote, you’ll
need to provide an estimate of your credit score and your property value.

Verify your new rate (Jan 24th, 2021)

Source: themortgagereports.com

Mortgage mayhem: Lenders pull gov’t loans, refuse to lock, and raise credit score minimums

Wait — what’s going on in the mortgage market right now?

Last week, the Federal Reserve offered assurance to lenders who were struggling to price mortgage rates.

There’s no question this was helpful. 30-year mortgage rates responded by dropping to just 3.33% average for the week, nearing the all-time low from a few weeks ago.

In any other environment, that would be great news for home buyers and refinancers.

But right now? Not so much.

Lenders are acting unpredictably as they face challenges they’ve never experienced before. It’s getting harder for them to make good loans and stay profitable.

In turn, borrowers are facing bigger and bigger hurdles.

Entire loan programs are disappearing, lenders are raising credit score minimums, and some won’t even lock your rate.

Here’s how to make sense of it all.

Verify your new rate (Jan 19th, 2021)

Lenders are tightening credit standards

As the economy continues to act erratically, many lenders are forced to take their own actions to help sustain themselves.

Lenders are making significant changes to FHA, VA and USDA loans. These changes could make home loans unavailable for mortgage borrowers who could have qualified just weeks earlier.

Some lenders have completely withdrawn government-backed loans — refusing to offer them at all for the time being.

And lenders that are still in the game have upped their minimum credit score requirements by as much as 100 points. To give just a few examples:

  • Wells Fargo has adjusted its minimum score requirement to 680 for all government loans (FHA, VA, and USDA)
  • US Bank also requires a 680 credit score for FHA, VA, and USDA loans, and 640 for conventional loans
  • loanDepot is requiring a 620 minimum FICO score for VA and FHA loans with a higher score (660+) for cash-out or streamline refinancing
  • Flagstar is requiring a 640 score for both purchase transactions and non-cash out refinances

Many other lenders are at 660 minimum for these types of loans.

While some lenders are still offering mortgage loans with scores as low as 620, many are setting standards so high that very few fit into the small window of eligibility.

For example, many lenders advertising a 620 credit score are doing so only if you can meet certain requirements.  For example, you might need:

  • At least two month’s worth of payments in the bank
  • No gift funds allowed for down payment or closing costs
  • No non-owner occupants without a 680 credit score

For many people who choose government-backed loans like FHA or VA, the looser qualification guidelines are a big draw.

The more stringent requirements lenders are putting in place could make home loans inaccessible for many until coronavirus fears calm down.

Some mortgage companies won’t let you lock at today’s rates

Mortgage lenders are tightening their rate lock requirements too.

Many won’t allow mortgage borrowers to lock until their loan is clear to close.

Effectively, that means you might not know what your mortgage rate is until you’re ready to sign your final papers days before the loan is completed and potentially week or months after you applied.

You might not know what your mortgage rate is until you’re ready to sign your final papers.

For many refinancers, that could make the point of refinancing moot, if their rate isn’t low enough to justify the closing costs.

And for buyers, a high rate could mean starting the loan shopping process again from ground zero.

Other lenders refusing to lock rates at all until the volatility slows down.

How the bailout could cripple the mortgage industry

You might wonder why lenders are cracking down so much on new borrowers.

Isn’t the Fed offering mortgage bankers huge bailouts? And wouldn’t lenders want more business in a time when many industries are going under?

Well, it’s not quite that simple.

The Fed’s unprecedented $183 billion purchase of mortgage-backed securities recently was meant to drive down mortgage rates. And, it worked.

However, mortgage servicers are now facing a difficult position as more homeowners elect to suspend payments during the crisis.

When a homeowner misses a payment, servicing companies are contractually obligated to advance payments to investors in securities markets.

The Mortgage Bankers Association warns that the U.S. housing market is “in danger of large-scale disruption,” due to efforts by the Federal Reserve that were intended to help rescue the mortgage market.

In other words, you’re not paying your mortgage company, but it still has to pay its own creditors.

A flood of missed mortgage payments is threatening to bankrupt U.S. mortgage lenders, deepening the economic toll of the pandemic.

The Mortgage Bankers Association (MBA), in a dismal letter to regulators, warned that the U.S. housing market is “in danger of large-scale disruption,” due to efforts by the Federal Reserve that were intended to help rescue the mortgage market.

>> Related: How to pause mortgage payments if you lost your job due to COVID-19

What’s happening to mortgage companies behind the scenes

This is where it gets technical.

The Feds forcefully entered the mortgage market a couple of weeks ago — in part, to combat rising rates. And in part, because of a fear that borrowers wouldn’t be able to pay their loans.

All told, the Fed has purchased $250 billion in mortgages over the past two weeks.

That’s $84 billion more than the Fed had bought over any four-week period during the financial crisis in 2009.

While the Fed helped drive rates down, they also blew up a widespread “hedge” that mortgage lenders use to protect themselves against rate increases.

Hedging pays lenders if the prevailing rate in the market is higher than the mortgage rate they locked in with the customer.

Normally, hedging is considered to be a safe trade. The hedge simply protects the lender against higher rates until the mortgage closes.

This system works well, most of the time.

But when mortgage rates are highly volatile — as they’ve been these past weeks — it’s difficult for lenders to use the same hedging strategy.

And, compounding the problem, many would-be homeowners couldn’t close on their loans because of quarantines.

Locking lots of loans that didn’t close left mortgage lenders with only the cost of the hedge and no income from the loan closing.

The huge volatility in mortgage bonds created massive margin calls from the broker-dealers, who wrote the hedges, to their mortgage bankers.

According to Barry Habib, founder of MBS Highway, “Some of these mortgage bankers are now facing margin calls of tens of millions of dollars that could drive them out of business.”

In its letter to regulators, the MBA said:  “The dramatic price volatility in the market for agency mortgage-backed securities [MBS] over the past week is leading to broker-dealer margin calls on mortgage lenders’ hedge positions that are unsustainable for many such lenders.”

The letter went on to say, “Margin calls on mortgage lenders reached staggering and unprecedented levels by the end of the week. For a significant number of lenders, many of which are well-capitalized, these margin calls are eroding their working capital and threatening their ability to continue to operate.”

While the stock market is playing a game of Chutes and Ladders, lenders are scurrying to find ways to continue to successfully operate in foreign territory.

What should you do if you’re trying to get a mortgage?

The roller coaster ride that mortgage lenders are experiencing isn’t all doom and gloom for you.

In fact, there is a bit of a silver lining for mortgage borrowers. Until the economy settles down, mortgage lenders are trying to balance how much to pull back vs making good loans.

Not all lenders are reacting the same way.

This means some lenders have not instituted minimum score requirements as low as their competitors. Some lenders may not be hedging as much as others, which means lower rates.

Now more than ever before, mortgage borrowers should shop around until they find a lender that can fit your needs.

>> Related: How to shop for a mortgage and compare rates

Questions you should ask a mortgage lender right now

If you’re currently in the market for a loan, you’ll want to make sure you’re asking your lender plenty of questions:

  • What are your minimum credit score requirements?
  • How long do you expect it to take from application to closing?
  • At what point can I lock my rate and for how long?
  • What happens if my loan doesn’t close within the allotted rate lock period?
  • Who will be responsible for rate extension fees if my loan doesn’t close on time?
  • Do you have a float-down policy if rates drop significantly after locking?
  • Is the rate you’re quoting me include any discount points?

Unlike the housing crash a decade ago, the housing and mortgage markets are much healthier now.

Homeowners have a record amount of equity, so there’s less risk of home values dropping far enough to put many homeowners underwater (like what happened during the subprime mortgage crisis).

Is it a good time to act on low rates?

Say you find a low rate, and a lender that’s still offering favorable loan terms.

Even then, you should weigh the decision of taking out a new loan carefully.

How stable is your job looking right now? How much do you have in savings? And if you were to become unemployed, could you still make the mortgage payment?

Some borrowers might stand to benefit from today’s low rates, but it’s certainly not the right time for everyone.

Rates will likely stay low even after this crisis is over, so don’t think staying on the safe side will backfire. Make the decision that’s best for you.

Verify your new rate (Jan 19th, 2021)

Source: themortgagereports.com

Why are mortgage rates going up? Biden, vaccines, and interest rates

Mortgage rates are on the rise

The start of the year saw another drop in mortgage rates, with the average 30-year fixed rate falling to 2.65% — its lowest low ever, according to Freddie Mac.

But then interest rates reversed.

The average 30-year mortgage rate spiked to 2.79% on January 14, per Freddie Mac’s survey. Other sources reported averages as high as 2.88% on the same day.

Experts predict rates will keep on climbing in 2021.

The change should be modest — with 30-year rates in the mid-3% range, at worst — but the heyday of new record lows every week could be ending.

Check your mortgage rates today (Jan 18th, 2021)

Just how much did mortgage rates rise?

There’s no question mortgage interest rates are ticking up. But how much they’ve increased depends on who you ask.

Freddie Mac, the industry’s go-to for current mortgage rates, reports a relatively modest spike of 0.14%. It also showed rates pushing downward until last week.

But other sources paint a different picture.

Mortgage News Daily, for one, was already reporting 30-year rates at 2.86% on the same day Freddie listed its lowest-low of 2.65%.

So which source is right? Both of them are, in a way.

Differences in rate reporting are common due to companies’ different survey practices. They can also vary based on whether the source looks at purchase or refinance mortgages.

Remember that in the third quarter of 2020, the Federal Housing Finance Agency (FHFA) instituted an Adverse Market Refinance Fee of $500 per $100,000 borrowed — which has led to higher rates on most refinance loans.

The other thing to keep in mind is that rates in the news are averages. That means borrowers with good credentials can often still get lower rates than what’s shown.

So even though interest rates have ticked up, the ultra-lows of the last few weeks aren’t completely gone.

Check your mortgage rates (Jan 18th, 2021)

Why are mortgage rates going up? 

The short answer is that mortgage rates are going up because the economy is starting to have a more positive outlook on post-COVID recovery.

Coronavirus has been the major force keeping rates low over the past year. The closer we get to widespread vaccination — and the better our economic outlook as a result — the higher rates will go.

Although the U.S. is still at a critical stage with the virus, and far from tangible recovery, we’re finally starting to see a path forward.

This is largely due to Biden’s win, as well as the Georgia runoff election in which Democrats Raphael Warnock and Jon Ossoff won Senate seats. 

The impact of Biden and Senate Democrat wins

Current mortgage rate movements are due partly to the fluidity of the political and economic situation in the U.S., as the country prepares for a transition from the Trump administration to the Biden White House on January 20.

President-Elect Joe Biden has signaled that he wants to implement a $1.9 trillion stimulus plan to jumpstart the economy, and the Democratic wins in Georgia give him a Senate majority that will likely aid his efforts. 

Although Biden’s proposed stimulus plan has drawn criticism that relief checks of even $2,000 are unlikely to do much for the economy, the aim of the plan is to ease the country’s economic burden and spur spending and growth.

Economic growth would likely raise mortgage rates as different sectors rebound.

Mortgage Professional America Magazine also reported that stimulus spending could increase inflation, which would drive up mortgage rates as well. 

Keeping an eye on the 10-Year Treasury

Eli Sklar, senior loan consultant with loanDepot, pointed to the Ten-Year Treasury as an indicator of an improving economy and a signal that rates will rise in the coming year. 

“The Ten-Year Treasury’s price, which is a big indicator of mortgage rates, is inversely related to how the market is doing. As the market continues to do well, the Ten-Year Treasury’s value goes down because the Ten-Year Treasury is known as the safest investment,” Sklar said. 

A spike in investor interest in the Ten-Year Treasury as the economy cratered last year, combined with the Federal Reserve’s commitment to keep interest rates low, drove down mortgage rates.

But, Sklar said, as the economy recovers and people regain confidence in other types of investments, the Ten-Year Treasury will decline and mortgage rates will rise once again. 

Verify your new rate (Jan 18th, 2021)

How high will mortgage rates go in 2021?

Mortgage rates could continue to rise this year, particularly if the newly elected President Biden is able to enact a relief package that includes direct payments to taxpayers and other stimulus measures.

However, major housing agencies predict only a modest rise throuhout 2021, with 30-year mortgage rates staying in the high 2% or low 3% range on average.

Agency 30-Yr Rate Prediction
Fannie Mae 2.80%
Wells Fargo 2.89%
Freddie Mac 3.00%
National Assoc. of Home Builders 3.00%
National Assoc. of Realtors 3.20%
Mortgage Bankers Assoc. 3.30%
Average of all agencies 3.03%

As long as the pandemic forces the closure or reduced hours of businesses and strains the economy, it’s unlikely that mortgage rates will rise substantially. 

Even with widespread vaccine access, a recovery for individuals who suffered job losses or reduced hours, not to mention hard-hit small businesses, won’t happen overnight. 

“I do think it’s going to get better, but I think it’s worse than people think,” said Jarred Kessler, CEO of EasyKnock, a company that allows people to tap the equity in their homes through a sale-leaseback program.

Kessler says a slow but steady recovery as the service industry resurges and businesses and individuals get back on their feet “will be correlated with [rising] interest rates.”

As long as COVID strains the economy, it’s unlikely mortgage rates will rise substantially.

“I think we’re going to stay in a low interest rate environment for definitely the next two years,” Kessler said. 

Once the economy does begin to recover more consistently, however, increased yields on Treasury and other bonds will nudge interest rates higher as well, MarketWatch reports. 

Rates could also rise if the federal government stops, or at least eases, its pandemic policy of buying unlimited mortgage-backed securities.

If the economy begins steadily improving, the Federal Reserve may begin tapering those purchases, which could impact rates. However, Kessler said a formal announcement about a policy change seems unlikely in the immediate future. 

“It’s a Catch-22. If you do it, rates are going to go up and the Fed might be forced to backtrack a little bit,” Kessler said. “I think things are too fragile right now.” 

The bottom line is that although rates may rise somewhat in the coming months, the Federal Reserve projects that they will stay at historically low numbers through at least 2023. 

COVID vaccines will set the tone for mortgage interest rates

As a COVID-19 vaccine becomes more widely available, rates could also rise.

In theory, as more people get the vaccine and are able to safely eat at restaurants and attend large events, the economy will regain some of the momentum lost during the pandemic. 

However, a full recovery will take time, particularly if many opt not to get the vaccine due to fear of side effects.

The Pew Research Center found that as of December, 60% of Americans surveyed said they would likely take the vaccine once it became available to them. But 21% expressed misgivings about the vaccine and said they would probably not get it, even once more information became available about it. 

Although the percentage of people who need to be vaccinated in order to achieve herd immunity to COVID-19 is not yet known, according to the World Health Organization, it typically must be significantly higher than 60%.

While vaccine numbers and herd immunity might seem far removed from mortgage rates, they’re actually closely linked.

Remember that a weak economy means low mortgage rates, because investors pour money into the safe haven of mortgage-backed securities (MBS). This pushes rates down.

As the economy improves, which will gradually happen with widespread vaccination, investors will turn elsewhere and mortgage rates will once again increase.

Should I try to buy a house while rates are low? 

Buying a home is something you should decide based on your finances rather than what’s happening in the market.

As Kessler puts it, “I think you’re nuts if you’re trying to time it” for when mortgage rates are at record lows.  

“You’re in an unprecedented period of time where you can borrow for pretty much nothing right now. If you want to buy a home, don’t buy a home for a one-year trade. You should be thinking five, 10 years out,” he said.

It’s best to consider your credit score, savings, and the local real estate market, and make a decision based on those factors rather than the broader market. 

Even if you wait to buy a home until your finances improve, you’re still looking at historically low mortgage rates.

Even if you wait to buy until you’re in a better financial position and rates increase by then, you’re still looking at historic lows, Sklar said.

The important thing is to make sure you can afford your payments on the home you want, and to take a long-term view of what you’re paying. 

Sklar also noted that buyers should keep in mind that purchasing in a low-rate environment isn’t the only way to save on interest. You can also buy down your rate by paying discount points when you close on the home to reduce the amount of interest you’ll pay. 

Establishing good credit, keeping non-mortgage debts low, and saving up for a larger down payment can also help you qualify for a competitive rate.

Should I rush to lock a refinance rate?

Sklar said he advises clients against trying to “time” the market or waiting to lock in a rate in the hopes that it might go a little bit lower. 

“Do I expect it to go to zero? It’s not going to happen,” he said. “So if you don’t lock it, maybe you’ll lose a little bit from it going down. But there’s so much more to lose because if the rates go to simply 3%, you’ve just lost a tremendous amount of money.” 

Don’t worry if you’re not at the rate-lock stage yet. The low-rate window for refinancing isn’t over.

Mortgage rates are still near record lows and expected to stay there for the rest of 2021. If your current interest rate is in the 4-5% range or higher, you stand to save a lot even as rates are ticking up slightly.

Instead of focusing on timing the market, focus on how a mortgage refinance could benefit you.

“I think people are getting too fixed on the interest rate,” Sklar said. “I think people have to look at their actual savings.” 

Someone who wants to refinance, for instance, needs to calculate exactly how much they’ll save by applying for a new loan. If you’re only trimming your payments by a small amount each month, it may not be worth the time and closing costs to take out a new loan. 

Or maybe saving month-to-month isn’t your priority. If you want to cash-out home equity or pay off your mortgage early, timing the market for a rock-bottom rate might not be quite as important.

Whether you’re refinancing or buying a home, the right timing always depends on your unique situation.

Rates should stay low for the rest of the year at least, so lock when you’re ready and it makes sense for you to do so.

Verify your new rate (Jan 18th, 2021)

Source: themortgagereports.com

FHA loan limits increase for single-family and multifamily loans

2021 FHA loan limits range from
$350K to over $1.5 million

FHA loan limits just increased for all home buyers
and refinancing homeowners.

The new baseline FHA loan limit is $356,362 for single-family homes.

Multifamily loan limits now go up to $685,400 for a 4-unit property.

And that’s just the “floor.” In high-cost areas, the FHA loan limit “ceiling” goes all the way up to $822,375 for a single-family home and over $1.5 million for a 4-unit property.

Though loan limits have increased, FHA mortgages are still available with a credit score starting at 580 and 3.5% down.

And, FHA mortgage rates are still sitting at historic lows.

Verify your FHA loan eligibility (Jan 16th, 2021)


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FHA loan limits by county for
2021

In order to get approved for an FHA loan, your mortgage must be within the maximum loan amount the FHA will insure. Known as “FHA
loan limits”, these maximums vary by county.

This year the Department of Housing and Urban
Development (HUD) is increasing FHA loan limits in almost every county (3,100)
while just 125 counties will remain the same.

There are four different pricing tiers for FHA loan
limits: a standard tier, a mid-range
tier, a high-cost tier, and a special exception tier.

In low-cost counties, FHA loan limits are now capped at $356,362 for a single-family home loan.

In high-cost counties, FHA’s single-family loan limit is $822,375.

However, many counties fall in the ‘mid-range’ category with limits somewhere between the floor and ceiling.

Single-family (one-unit) FHA loan limits

Low-Cost Area $356,362
Mid-Range Area $356,363–$822,374
High-Cost Area $822,375
AK, HI, Guam, & Virgin Islands $1,233,550

According to FHA’s guidelines, a low-cost area is
one where you can multiply the
median home price by 115% and the product is less than $356,362.

Similarly, a high-cost area is one where the median home price
multiplied by 115% is greater than $822,375.
There are just 65 U.S. counties
with home prices high enough to qualify for FHA’s maximum loan limit.

There are also ‘special exception’ loan limits in
Alaska, Hawaii, Guam, and the U.S. Virgin Islands. In these areas, FHA caps
single-family home loans at a surprising $1,233,550.

FHA says the higher
loan limits in Alaska, Hawaii, Guam, and the Virgin Islands are meant to “account for higher costs of construction.”

You can look up your local FHA loan limits using this search tool.

Verify your FHA loan eligibility (Jan 16th, 2021)

FHA multifamily loan limits

The Federal Housing Administration also backs
mortgages on 2-, 3-, and 4-unit properties. These types of homes have higher
loan limits than single-family residences.

FHA multifamily loan limits

  2-Unit Property 3-Unit Property 4-Unit Property
Low-Cost Area $456,275 $551,500 $685,400
Mid-Range Area $456,276–$1,052,999 $551,501–$1,272,749 $685,401–$1,581,749
High-Cost Area $1,053,000 $1,272,750 $1,581,750
AK, HI, Guam, & Virgin Islands $1,579,500 $1,909,125 $2,372,625

Although FHA allows multifamily home loans, the
property must still be considered a ‘primary residence.’ That means the
homebuyer needs to live in one of the units full time.

In other words, an FHA loan cannot be used to
purchase an investment property. However, you can use an FHA mortgage to
purchase a 2-4 unit property, live in one unit, and rent out the others.

In this way it’s possible to get a multifamily loan
up to $1.5 million with a low-rate FHA loan and just 3.5% down payment.

What is an
FHA loan?

It can be confusing, but the Federal Housing Administration is not actually a mortgage lender. Rather, it’s a
mortgage loan insurer

The FHA provides insurance for banks and lenders that make FHA loans.

Payment for this insurance is known as the FHA ‘mortgage insurance
premium’ (MIP). It’s paid by homeowners but protects FHA mortgage lenders against
losses from loan defaults or foreclosure.

The main benefit of FHA-backed loans is that they’re often easier to qualify for than conforming mortgages.

FHA loan requirements
tend to be more lenient for first-time, low-credit, and lower-income borrowers.

As a few examples of the FHA’s buyer-friendly rules:

  • FHA mortgages require a down payment of just 3.5 percent
  • FHA loan down payment monies can be gifted from a family member
  • The minimum credit score requirement for an FHA loan is 580 in most cases

There are other FHA loan perks, too.

For example, FHA loans are assumable. This means that a
future buyer of your home can “assume” its existing mortgage at whatever
the mortgage rate happens to be.

If today’s mortgage rates are 3% and rates are 10% when
you sell, instead of applying for a new loan, your buyer can assume your
existing 3% FHA mortgage rate instead. This can make your home much easier
to sell in the future.

Another FHA loan perk is that FHA mortgage rates don’t change
with low credit scores or property type. FHA mortgage rates are the same, no
matter whether your score is a 740 or a 580; or, whether you live in a
single-family home or a 4-unit.

All FHA borrowers get access to the same, below market mortgage
rates that make FHA financing so attractive.

Check today’s FHA loan rates (Jan 16th, 2021)

FHA vs. conforming loan limits

FHA mortgage limits are closely tied to conforming loan limits.

Every year, the Federal Housing Finance Agency
(FHFA) updates its home price index. This is used to set both conforming loan
limits and FHA loan limits. But the two are calculated differently. 

Conforming loans — which follow guidelines set by
Fannie Mae and Freddie Mac — have higher loan limits than FHA mortgages.

For example, look at the standard, single-family loan limits for 2021.

  • FHA’s loan
    limit “floor” is $356,362
  • The
    conforming loan “floor” is $548,250 — a full $190K higher

However, not everyone can qualify for higher loan amounts via a conventional mortgage.

Fannie Mae and Freddie Mac require a minimum credit
score of 620 for a conforming loan. And for borrowers with credit on the lower
end of the spectrum, they charge higher rates and expensive private mortgage
insurance (PMI).

FHA loans are more attractive for borrowers with
fair credit despite having lower loan limits.

It’s possible to qualify for FHA financing with a
credit score as low as 580, and a low score won’t force you into a high
interest rate.

The FHA does charge its own mortgage insurance premium.
But this is often more affordable than conventional loan PMI for borrowers with
low credit and a small down payment.

FHA
Streamline Refinance loan limits

One perk of having an FHA loan is that you can refinance using the FHA Streamline Refinance program.

The FHA Streamline is a low-doc loan that gives homeowners the ability to
refinance without having to verify income, credit, or employment.

When you refinance via the FHA Streamline program, your new loan
must be within local FHA loan limits. But this will not be an issue.

Since the FHA Streamline can only be used on an existing FHA loan —
and no cash-out is allowed — you won’t be able to increase your loan balance
above current FHA mortgage limits.  

Other requirements for the FHA Streamline Refinance include:

  • You
    must be making your current mortgage payments on time. The FHA wants to see
    that your last 3 mortgage payments have been paid on time, and that you’ve been
    late on payments no more than one time in the last 12 months
  • Your
    current FHA mortgage must be at least 6 months old. The FHA will verify that
    you’ve made at least six payments on your current mortgage before allowing you
    to use the FHA Streamline Refinance program
  • The
    agency will verify that there’s a “benefit” to your refinance. Known as the Net
    Tangible Benefit clause, your “combined rate” must drop by at least 0.5%. You
    can achieve this portion of FHA eligibility by dropping your interest rate,
    mortgage insurance rate, or a combination of both

If you meet these guidelines, the FHA Streamline is a great way to
refinance into today’s ultra-low mortgage rates and lower your monthly payment.

Today’s FHA loan rates

FHA mortgages are riding the low-interest-rate
wave. With mortgage rates at historic lows, and loan limits on the rise, it’s
an excellent time to consider FHA financing.

Check with a lender to see how much home you can
afford thanks to 2021 FHA loan limits.

Verify your new rate (Jan 16th, 2021)

Source: themortgagereports.com

New York exodus gives Westchester most home sales in 24 years

The pandemic-fueled exodus from New York City propelled nearby Westchester County to its strongest year for home sales in more than two decades.

In 2020, completed purchases in the northern suburbs totaled 6,635, the highest tally in records dating back to 1996, according to a report by brokerage Houlihan Lawrence.

It was an abrupt reversal for a county that for years contended with slackening demand due to its highest-in-the-nation property taxes and an oversupply of older, sprawling homes far from train lines. The COVID-19 pandemic pushed those concerns aside as city-dwellers — armed with record-low mortgage rates — fled urban areas in search of more space for work, learning and recreation.

“Everything’s selling,” said Debbie Doern, senior vice president of sales at Houlihan Lawrence. “It’s not easy to get a house right now.”

The median price of single-family homes that changed hands in the fourth quarter jumped 20% from a year earlier to $738,250, appraiser Miller Samuel Inc. and brokerage Douglas Elliman Real Estate said in a report Thursday. It was the biggest annual jump since the end of 2002.

Properties moved quickly once they reached the market, depleting the supply of listings. The county’s single-family sales inventory at the end of December was down 29% from a year earlier to 1,299 homes, the fewest in records dating to 1994, Miller Samuel and Douglas Elliman said.

At the current rate of sales, it would take just 2.6 months to clear all those properties, the fastest pace on record.

“Buyers are poised and ready,” said Scott Durkin, president of Douglas Elliman. “They’ve got financing in hand, deposits in hand, they’re more forgiving of home inspections, and they’re ready to pounce.”

The rollout of COVID vaccines so far isn’t quelling demand. There were 1,459 pending home sales in Westchester as of Dec. 31, Houlihan Lawrence said. That’s 46% more than at the end of 2019.

Source: nationalmortgagenews.com

Current Mortgage Rates Continue to Move Lower

It’s been good news this week for home buyers and home owners looking to refinance as mortgage rates have improved. It hasn’t been a big swing lower but mortgage rates have mostly remained lower after a drop on Monday morning. Read on for more details.

Where are mortgage rates going?                                             

Mortgage rates move lower in the Freddie Mac PMMS

Current mortgage rates have moved lower for second straight week, according to the Freddie Mac Primary Mortgage Market Survey (PMMS).

Here are the numbers:

  • The average rate on a 30-year fixed rate mortgage moved lower by two basis points to 4.51% (0.5 points)
  • The average rate on a 15-year fixed rate mortgage ticked lower by three basis points to 3.98% (0.5 points)
  • The average rate on a 5-year adjustable rate mortgage fell by five basis points to 3.82% (0.03 points)

Here is what Freddie Mac’s Economic & Housing Research Group had to say about rates this week:

“Mortgage rates inched backward this week to their lowest level since mid-April.

Backed by very strong consumer spending, the economy is red-hot this month, which is in turn rippling through the financial markets and driving equities higher.

Unfortunately, the same cannot be said about the housing market, where it appears sales activity crested in late 2017. Existing-home sales have now stepped back annually for the fifth straight month, and purchase mortgage applications this week were barely above year ago levels.

It is clear affordability constraints have cooled the housing market, especially in expensive coastal markets. Many metro areas desperately need more new and existing affordable inventory to break out of this slump.”

Rate/Float Recommendation                                  

Lock now before move even higher     

While mortgage rates have improved for the second consecutive week, the long-term outlook continues to be for them to gradually increase as the Federal Reserve gets ready for and follows through with increases to the nation’s benchmark interest rate. The first hike is expected to take place next month, with another likely in December.

Learn what you can do to get the best interest rate possible.  

Today’s economic data:           

Jobless Claims

Applications filed for U.S. unemployment benefits for the week of 8/18 came in at 210,000. That’s 2,000 lower than the previous reading, bringing the 4-week moving average down to 213,750.

FHFA House Price Index

The FHFA House Price Index increased 0.2% from the previous month in June. That brings the year over year increase to 6.5%.

PMI Composite Flash

The PMI Composite index hit a 55.0 in August. Manufacturing came in at 54.5 while Services hit 55.2.

New Home Sales

New Home Sales for July came in at an annualized rate of 627,000. That’s slightly below the consensus reading of 649,000.

Jackson Hole Symposium

Kicks off today and ends tomorrow.

Kansas City Fed Mfg Index 

11:00am

Notable events this week:     

Monday:   

Tuesday:   

Wednesday:         

  • Existing Home Sales
  • EIA Petroleum Status Report
  • FOMC Minutes

Thursday:     

  • Jobless Claims
  • FHFA House Price Index
  • PMI Composite Flash
  • New Home Sales
  • Jackson Hole Symposium
  • Kansas City Fed Mfg Index

Friday:          

  • Fedspeak
  • Jackson Hole Symposium

*Terms and conditions apply.

Carter Wessman

Carter Wessman is originally from the charming town of Norfolk, Massachusetts. When he isn’t busy writing about mortgage related topics, you can find him playing table tennis, or jamming on his bass guitar.

Source: totalmortgage.com

Current Mortgage Rates are Flat to Start the Week

It’s a quiet start to the week with mortgage rates holding steady. That could be a trend that persists for the remainder of the week as there’s really not much scheduled on the economic calendar this week.

Thursday and Friday are the only days where we really have some inflation data out that could impact rates. Read on for more details.

Where are mortgage rates going?                                            

Rates start the week flat

After a weaker than expected July monthly jobs report on Friday, we saw financial market participants move out of stocks and into bonds, pushing long-term Treasury yields lower.

Mortgage rates typically move in the same direction as the 10-year yield, so rates drifted a little lower as we stepped into the weekend. The week after a monthly jobs report is historically a slow one and that’s really what the economic calendar points to.

There’s not a whole lot of economic data out, which means the market could be more easily influenced by political and overseas events. If nothing happens on those fronts, we could be in for a boring week with mortgage rates holding steady.

Of course, even in the so-called “stormy week” last week, we didn’t see mortgage rates stray too far from where they’ve been the past couple months.

The writing on the wall has been for rates to increase over the coming weeks and months, but while they did hit a seven-year high in the Freddie Mac Primary Mortgage Market Survey (PMMS) last Thursday, the ascent has so far been made up of little baby-steps.

The Consumer Price Index reading for July on Friday will be the most closely watched economic event. Depending on what happens with that reading we could see mortgage rates move slightly up or down.

Rate/Float Recommendation                                  

Lock now before move even higher     

Mortgage rates are on track to steadily rise in the coming months as the Federal Reserve gets ready to raise the nation’s benchmark interest rate at least one more time this year.

If you’re planning on buying a home or refinancing your current mortgage, we strongly recommend that you take action sooner rather than later. The longer you wait, the more likely it is that you’ll be locking in a higher rate on your loan.

Learn what you can do to get the best interest rate possible.  

Today’s economic data:           

  • There are no significant economic reports out today.

Notable events this week:     

Monday:   

Tuesday:   

Wednesday:         

  • Fedspeak
  • EIA Petroleum Status Report
  • 10-Yr Note Auction

Thursday:     

  • Jobless Claims
  • PPI-FD
  • Fedspeak

Friday:          

  • Consumer Price Index

*Terms and conditions apply.

Carter Wessman

Carter Wessman is originally from the charming town of Norfolk, Massachusetts. When he isn’t busy writing about mortgage related topics, you can find him playing table tennis, or jamming on his bass guitar.

Source: totalmortgage.com

2021 Conforming loan limits range from $548K to over $1 million

Conforming loan limits increase to $548,250 for most areas

Conforming loan limits are on the rise.

Home buyers in most of the U.S. can now get a conforming loan up to $548,250 with just 3% down.

And the single-family loan limit is over $822,000 in high-cost areas.

Multifamily home buyers get a nice increase in
buying power, too, with limits for 2-4-unit properties topping $1 million in
some areas.

On top of this, we’re seeing ultra-low interest rates carry over from 2020 into 2021.

Put all it together, and you get incredible
purchase and refinance opportunities for home buyers and homeowners alike.

Check today’s conforming mortgage rates (Jan 14th, 2021)


In this article (Skip to…)


Freddie Mac and
Fannie Mae loan limits for 2021

Lending limits for conventional loans got a nice boost this year.

The Federal Housing Finance Agency (FHFA) determined home prices are up 7.42% on average across the nation.

It raised
conforming loan limits by the same percentage — a dollar increase of almost
$38,000 for the standard one-unit home. Multi-unit
properties got a similar boost.

Baseline conforming loan limits

Standard loan limits for 2021, which apply in most of the United States, are as follows:

  • 1-unit homes: $548,250
  • 2-unit homes: $702,000
  • 3-unit homes: $848,500
  • 4-unit homes: $1,054,500

Keep
in mind that these are only “standard” limits. In areas with high-cost real estate, buyers get significantly higher mortgage limits.

Maximum conforming loan limits

High-balance
conforming loan limits vary by county. They can fall within the following
ranges:

  • 1-unit homes: $548,250­–$822,375
  • 2-unit homes: $702,000–$1,053,000
  • 3-unit homes: $848,500–$1,272,750
  • 4-unit homes: $1,054,500–$1,581,750

Areas
such as Alameda County, California, Arlington, Virginia, and Jackson, Wyoming enjoy the maximum conforming loan limits, while cities like Seattle, Washington and
Baltimore, Maryland fall between the “floor” and the “ceiling.”

In
Alaska, Hawaii, Guam, and the U.S. Virgin Islands — which follow their own loan
limit rules — the baseline loan limit for 2021 is $822,375 for a one-unit
property.

Verify your home buying eligibility (Jan 14th, 2021)

Conforming
loan limits by county for 2021

What is a
mortgage loan limit?

A loan
limit is the maximum amount you can borrow
under certain mortgage programs.

There
is not just one loan limit, but many. Conventional mortgages adhere to one set
of loan limits, and FHA another.
VA loans did away with limits altogether in 2020.

In the world of conforming loans, Fannie Mae and Freddie
Mac limit “borrowable” amounts to keep their nationwide programs available to
those who need them.

For instance, Fannie Mae doesn’t want a $10 million loan
going through its system. That’s a lot of risk wrapped up in one
transaction, and the agency would rather issue many smaller loans to more home
buyers.

Fortunately,
loan limits are on the rise in 2021 to reflect rising
home prices across the country.

What
is a conforming loan?

A conforming loan is any mortgage that:

  1. Has a loan amount within local conforming loan limits
  2. Meets lending guidelines set by Fannie Mae and Freddie Mac

Mortgages within conforming loan limits are eligible to be backed by Fannie Mae and Freddie Mac, as long as the borrower meets basic criteria for credit score, income, down payment, and debt levels.

Conforming loans typically require:

  • A credit score of at least 620
  • A debt-to-income ratio below 43%
  • A down payment of at least 3%
  • Two-year history of stable employment and income

Exact conforming loan requirements
can vary by lender, but they all have to meet the minimum guidelines set by
Fannie and Freddie.

These
standards give lenders and investors more
confidence in these loans.

As a result, conforming loans are available with ultra-low mortgage rates and just 3% down payment.

Check today’s conforming mortgage rates (Jan 14th, 2021)

What if my
loan is over the conforming limit?

Remember
that the conforming loan limit applies to the loan amount, not the home price.

For
instance, say a buyer is purchasing a 1-unit home in Boulder, Colorado where
the limit is $654,350. The home price is $1 million, and the buyer is
putting $450,000 down.

This
buyer is eligible for a conforming loan. The final loan amount is
$550,000 — well within limits for the area.

Still,
many applicants will need financing above their local loan limit. For
them, a number of solutions exist.

Jumbo loans

The
simplest method is to use a jumbo loan. Jumbo mortgages describe any home loan
above local conforming limits.

Using
the example above, let’s say the Boulder, CO home buyer puts down $200,000 on a
$1 million home. In this case, their loan amount would be $800,000 — far above
the local conforming loan limit of $654,350. This buyer would need to finance
their home purchase with a jumbo loan.

You might think jumbo mortgages would have higher interest rates, but that’s not always the case.

Jumbo loan rates are often near or even below conventional mortgage rates.

The
catch? It’s harder to qualify for jumbo financing. You’ll likely need a credit
score above 700 and a down payment of at least 10-20%.

If
you put down less than 20% on a jumbo home purchase, you’ll also have to pay
for private mortgage insurance (PMI). This would increase your monthly payments
and overall loan cost.

The
next method helps you avoid PMI when buying above conforming loan limits.

Verify your jumbo loan eligibility (Jan 14th, 2021)

Piggyback financing for high-priced homes

Perhaps the most cost-effective method is to choose a piggyback loan. The piggyback or “80/10/10” loan is a type of financing in which a first and second mortgage are opened at the same time.

Typically, this structure is used to avoid private mortgage insurance.

A buyer can get an 80 percent first mortgage, 10 percent second mortgage (typically a home equity line of credit), and put 10 percent down.

However,
these loans are also available for those putting 20 percent down or more. Here’s how
it would work.

  • Home price: $700,000
  • Down payment: $140,000 (20%)
  • Financing needed: $560,000
  • Local conforming limit: $548,250

The
buyer could structure his or her loan as follows.

  • Down payment: $140,000
  • 1st mortgage: $548,000
  • 2nd mortgage: $12,000

The
home is purchased with a conforming loan and a small second mortgage. The first
mortgage may come with better terms than a jumbo loan, and the second mortgage
offers a great rate, too.

Verify your piggyback loan eligibility (Jan 14th, 2021)

What’s the jumbo loan limit for 2021?

Technically there’s no jumbo loan limit for 2021.

Since jumbo mortgages are above the conforming loan limit,
they’re considered “non-conforming” and are not eligible for lenders to assign
to Fannie Mae or Freddie Mac upon closing.

That means the lenders offering jumbo loans are free to set
their own criteria, including loan limits.

For example, one lender might set its jumbo loan limit at $2
million, while another might set no limit at all and be willing to finance
homes worth tens of millions.

But the amount you can borrow via a jumbo or
non-conforming loan is limited by your finances.

You need enough income to make the monthly mortgage payments on your new home. And your debt-to-income ratio (including your future mortgage payment) can’t exceed the lender’s maximum.

You can use a mortgagecalculator to estimate the maximum home price you can likely afford. Or contact a mortgage lender to get a more accurate number.

What if I’m
getting an FHA loan?

FHA loans come with their own loan limits. Standard FHA limits for 2021 are as listed below.

  • 1-unit homes: $356,362
  • 2-unit homes: $456,275
  • 3-unit homes: $551,500
  • 4-unit homes: $685,400

You
might notice that FHA’s limits are considerably lower than conforming limits.
That’s by design.

The FHA program, backed by the Federal Housing Administration, is meant for home buyers with moderate incomes and credit scores.

But
the FHA also suits home buyers in expensive counties. Single-family FHA loan limits reach $822,375
in high-cost areas within the continental U.S. and a
surprising $1,233,550 for a 1-unit home in Alaska, Hawaii, Guam, or the Virgin Islands.

What are
today’s mortgage rates for these loan limits?

Mortgage
rates for conforming loans are stellar, which is why so many buyers consider a
conforming loan before using jumbo financing.

Get
a rate quote for your standard or extended-limit conforming loan. Compare to
jumbo rates and piggyback mortgage rates to make sure you’re getting the best
value.

Verify your new rate (Jan 14th, 2021)

Source: themortgagereports.com

Current Mortgage Rates Stay Lower on Monday

We saw mortgage rates dip a little lower on Friday after trouble in Turkey led financial market participants to seek out the perceived safety of long-term government bonds.

Mortgage rates are expected to stay close to current levels this week, but we could see some movement after a few key economic reports get released. Read on for more details.

Where are mortgage rates going?                                            

Rates hold lower to start the week

It’s a quiet start to the week as there are no significant economic reports scheduled for release. That’s keeping long-term government bond yields, which dropped due to an increased demand on Friday after trouble for Turkey’s lira, down near three week lows.

The yield on the 10-year Treasury note (the best market indicator of where mortgage rates are going) is currently at 2.88%. That’s basically flat on the day and about six basis points lower from where it was this time last week.

The expectation for this week is the same as it’s been for quite some time, and that’s for current mortgage rates to stay close to present levels. The fact that rates have remained in a tight range all summer (and most of spring) really isn’t the worst thing for borrowers, as many forecasters had expected rates to rise higher than they are now by this time.

The pressure isn’t off quite yet, though, as it is widely anticipated that the Federal Reserve will increase the nation’s benchmark interest rate, the federal funds rate, by at least a quarter-point by the time 2019 rolls around.

According to the CME Group’s Fed Funds futures, there is a 96.0% chance that the federal funds rate will go up a little over a month from now at the FOMC’s September meeting.

That would push the target range up a quarter-point to 2.00%-2.25%. There is still a lot of time between now and December, but at the moment the majority of analysts believe another rate hike will take place then, pushing the fed funds target range up to 2.50%-2.75%.

Rate/Float Recommendation                                  

Lock now before move even higher     

With mortgage rates expected to rise in the coming months, we believe the prudent decision for most borrowers is to lock in a rate sooner rather than later. The longer you wait, the more likely it is that you’ll get a higher rate and pay more interest on your purchase or refinance.

Learn what you can do to get the best interest rate possible.  

Today’s economic data:           

  • Nothing out today.

Notable events this week:     

Monday:   

Tuesday:   

  • NFIB Small Business Optimism Index
  • Import and Export Prices

Wednesday:         

  • Retail Sales
  • Empire State Mfg Survey
  • Productivity and Costs
  • Industrial Production

Thursday:     

  • Housing Starts
  • Jobless Claims
  • Philly Fed Business Outlook Survey

Friday:          

  • Consumer Sentiment

*Terms and conditions apply.

Carter Wessman

Carter Wessman is originally from the charming town of Norfolk, Massachusetts. When he isn’t busy writing about mortgage related topics, you can find him playing table tennis, or jamming on his bass guitar.

Source: totalmortgage.com

Current Mortgage Rates Continue to Rise Gradually

Here we go with yet another week. We should be in for a bit of action with a handful of speaking engagements from Federal Reserve officials and the September Jobs Report on Friday morning.

Mortgage rates will likely remain in a tight range but it wouldn’t be too surprising if they jumped around a little. Read on for more details.

Where are mortgage rates going?  

Mortgage rates poised to stay in tight range

Mortgage rates have been on the rise for a little over a month now.

Last week, the Federal Reserve followed through with a widely anticipated increase to the nation’s benchmark interest rate, the federal funds rate.

Financial market participants had already priced that rise into their portfolios so there was little commotion once the final verdict came through.

Looking ahead to the rest of the year, investors are giving the December meeting the greatest odds of another quarter point increase with about an 80% chance according to the CME Group’s Fed Funds Futures.

Getting back to events closer on the horizon, we have several speaking engagements from Federal Reserve officials this week.

It will be interesting to get their takes on the recent decision and see if they offer any insight into what might happen in the coming months.

Also this week, we have the monthly jobs report for September out on Friday morning.

That report is always one of the most closely watched pieces of economic data every month and there’s no reason to believe that this time around will be different. Depending on what happens, we could see mortgage rates rise or fall as we head into the weekend.

Rate/Float Recommendation                                     

Lock now before rates move even higher          

Mortgage rates have been moving higher recently and that trend is expected to continue over the coming weeks and months.

If you’re on the market for a purchase or refinance, we strongly recommend that you take action sooner rather than later in order to get the best rate possible.

The longer you wait, the more likely it is that you will be locking in a higher rate and paying more in interest over the life of your loan.

Learn what you can do to get the best interest rate possible.  

Today’s economic data:                   

Fedspeak 

  • Atlanta Fed President Raphael Bostic at 8:30am
  • Minneapolis Fed President Neel Kashkari at 11:00am
  • Boston Fed President at 12:15pm

PMI Manufacturing Index 

The PMI Manufacturing Index hit a 55.6 for September. That’s slightly above the consensus for 54.5.

ISM Mfg Index

The ISM Mfg Index hit a 59.8 in September.

Construction Spending

Construction

Notable events this week:       

Monday:   

  • Fedspeak
  • PMI Manufacturing Index
  • ISM Mfg Index
  • Construction Spending

Tuesday:   

Wednesday:         

  • Fedspeak
  • ADP Employment Report
  • PMI Services Index
  • ISM Non-Mfg Index
  • EIA Petroleum Status Report

Thursday:     

  • Fedspeak
  • Jobless Claims
  • Factory Orders

Friday:          

  • Employment Situation
  • International Trade
  • Fedspeak

*Terms and conditions apply.

Carter Wessman

Carter Wessman is originally from the charming town of Norfolk, Massachusetts. When he isn’t busy writing about mortgage related topics, you can find him playing table tennis, or jamming on his bass guitar.

Source: totalmortgage.com