Mortgage Rates at Historical Lows, More Financing Options

If you haven’t heard the news, mortgage rates hit new historical lows this week. Depending on the area you’re in and your credit worthiness, mortgage rates are at 4 percent, if not under 4 percent. That’s just cheap money – plain and simple.

Not only are mortgage rates at all time lows, monthly payment amounts have come down substantially since the beginning of the year. Check it out…

Mortgage payments based on the conforming loan limit of $417,000 are now 9% cheaper as compared to the start of the year:

• January 2011 : A $417,000 mortgage cost $2,180.30 per month
• October 2011 : A $417,000 mortgage cost $1,976.42 per month

That’s over $200 per month saved for bills, home repairs, eating out or your vacation fund.

In addition to record-low mortgage rates and lower monthly payments, lenders are beginning to increase the number and types of financing options available to borrowers.

For example, I recently received an offer on a listing and could hardly believe my eyes…the buyer’s lender letter stated the type of loan as being “100% financing, no PMI”! Now this lender letter wasn’t from just any mom-and-pop mortgage shop – it was BB&T.

I could hardly believe it so I called the loan officer to verify and get the 411 on the loan program. Here’s the scoop,

• It’s a BB&T in-house program
• 100% financing
• no PMI (mortgage insurance)
• credit score of at least 660
• little or no credit history OK
• income cap of $84K based on the property being in Loudoun County, VA
• interest rate, points and closing costs were competitive with traditional financing programs

In case you’re wondering, “What’s the catch?” (I did too)…there’s no catch. There were no “hidden fees” and no last-minute hurdles for the buyer (or seller). We settled on time with no problems. At settlement, the buyer told me they were extremely satisfied with the entire financing process.

This is just one example of how lenders are easing their restraints on financing. I am by no means saying nor wishing that lenders get as lax as they did 2003 through 2006. But I am happy that they’re getting away from the overly-strict lending guidelines of the latter part of the last decade.

With mortgage money being cheaper than ever and financing options becoming more abundant, you’ve got a lot of good things going for you if you’re in the market to sell or buy a home. If you would like to discuss your financing options in more detail, click here to contact me and I will send you names of some great lenders so you can pick their brains and see what’s available to you.

photo credit

Related Articles

Home Values vs. Purchasing Power

Homes Values vs. Purchasing Power

Home buyers seem to mainly focus on price. Yes, price (aka home values) is important. But purchasing power (derived from interest rates) is just as, if not more important than homes values. In fact, purchasing power has an effect on home values. And many (including me) argue that purchasing power is the most important part of not just the home buying decision process, but real estate in general.

If home values and purchasing power were your birthday cake, home values would be the cake part and purchasing power would be the frosting/icing. Personally, the frosting/icing is my favorite and most important part the cake – similar to how purchasing power should be an extremely important part of the equation for all home buyers and those looking to sell and “move up”.

Let’s look at a real life example of purchasing power and how it effects you…

Let’s say you are looking to spend no more than $1500 on your monthly mortgage payment (principal and interest only).

• At today’s average rate of 4.25 percent, you can get a loan up to $304,000
• 10 years ago, rates were at 7 percent which means you could get a loan up to $225,000
• 20 years ago, rates were at 9 percent which means you could get a loan up to $186,000

Quite the difference, isn’t it?!

If words don’t really do it for you, here’s a chart comparing home values vs. purchasing power since 1991 (courtesy of Dan Green, The Mortgage Reports)…

 

 

And don’t forget about how much of an effect interest rates have on your principal loan balance and equity…

The higher the interest rate, the more of your monthly payment goes toward interest and the less of a dent you make in your principal loan balance you owe. A higher interest rate equates to you building less equity in your house each time you make a payment than you would if you had a lower interest rate.

(Even if you’re not a frosting/icing person, I hope you’re starting to see how it’s not just about the cake)

BTW…No, I’m not trying to get you to buy a house because,”Now is a great time to buy!” (courtesy of you-know-who). I’m just saying that you need to take purchasing power into consideration when deciding whether buying a home or “moving up” is right for you or whether you should just continue renting or stay where you are.

Putting Mortgage Rates Into Perspective

I’ve heard some folks saying, “Uh oh…mortgage rates are up!” and “Mortgage rates went up a lot (1/4 point) since last week and I’m going to wait for them to go back down.” Yes, mortgage rates may have gone up since last week. Yes, they may (or may not) go back down (though, in my humble opinion, the only way from here is up).

But seriously…do you realize how good we have it right now when it comes to mortgage rates and points?!

Let’s put things into perspective…

Several of my home buyers with good credit recently got sub-5 percent mortgage rates with no points (a point is equal to 1 percent of the loan amount). Not too long ago, people could only dream about single digit rates, let alone sub-5 percent. Here’s the pudding…

- In July 2006, the average 30-year fixed-rate mortgage was at 6.76 percent with .5 points

- In July 2001, the rate was 7.13 with .9 points

- In July 1996, the rate was 8.25 with 1.8 points

- In July 1991, the rate was 9.58 with 2 points

- In January 1982, rates were 17.48 with 2.2 points

When is the last time mortgage rates were below 5 percent with less than 1 point? They haven’t been this low since Freddie Mac started tracking mortgage rates in 1971.

Let’s crunch the numbers on a $400K loan…

• At a 5.0 percent mortgage rate with .7 points, your principal and interest would be $2,147.29  and your points would equal $2,800
• At 8.25 percent with 1.8 points, your principal and interest would be $3,005.07 and your points would equal $7,200
• At 17.48 percent with 2.2 points, your principal and interest would be $5,858.79 and your points would equal $8,800

Aren’t you glad you’re buying a property at today’s mortgage rates rather than those of the last two decades (especially with prices at pre-2000 levels in some areas)?!

And don’t forget the icing on the cake…the $8000 first-time home buyer federal tax credit.

So next time you say, “Rates just went up” remember that it could be worse…MUCH worse.

For a complete list of the average mortgage rate and points per month since 1971, click here.

If My Iraq War Veteran Home Buyers Just Got a 3.875% Interest Rate, Why Can’t You?

My Iraq War Veteran first-time home buyers (that’s them in the photo) and I thought we were hearing things when the lender said, “You qualify for a VA loan at an interest rate of 3.875 percent.” But we heard correctly! Qualified Veterans can get an interest rate as low as 3.875 percent on a VA (Veterans Affairs) loan.

Here’s the deal my Iraq War Veteran first-time home buyer clients got just last week:

• 3.875 percent interest rate for first 5 years
• No points
• The rate adjusts according to the Treasury ARM Rate (which is better than the LIBOR ARM Rate)
• The interest rate can’t increase more than 1 percent per year (only after the first 5 years)
• The maximum interest rate they can ever have is 8.875 percent regardless of how high future rates are
• No prepayment penalty

They are not planning on staying in their home for more than 5 to 7 years so this loan is perfect for them. A 30 year fixed rate VA loan is currently in the 5.25 percent range so they are saving about 1.5 percent on the interest rate. That comes out to a savings of $209.02 per month based on the amount they financed.

By the time they move, their rate will be between 3.875 percent and 5.875 percent. I think it’s safe to say that either of those rates will be lower than what the 30-year fixed rates will be in 5 to 7 years.

Besides saving money, why else is the low rate and cap so important?

Because the loan is assumable. This means that rather than a buyer having to go out and get their own financing/loan to buy this home, if they qualify, they can assume the existing loan and it’s terms (aka interest rate).

Let’s say rates are at 10 percent in 7 years. A qualified buyer could purchase their home and assume the loan at no more than 5.875 percent with the cap being at 8.875 percent.

And also because they’re building equity in their home more quickly. The lower the interest rate, the more of the monthly payment goes towards principal rather than interest. This means they will have paid down more principal and they will have more equity in their home than had they gone with a 30-year fixed rate loan at 5.25 percent.

How fast do you think they will be able to sell their house in 7 years when rates are 10 percent with “Current 3.875 to 5.875 percent interest rate assumable loan”?!

Can you say, “FAST!” No matter what the housing market conditions are like in 7 years, this property will stand out above the rest for the assumable low-rate financing alone.

Let’s do the math and see why.

Let’s say the property is worth $350K and rates are at 10 percent 7 years from now…

• If the buyer finances $350K at 10 percent, their Principal and Interest comes out to $3,071,50
• If the buyer assumes the current loan at 5.875 percent (the most it can be in 7 years), their Principal and Interest comes out to $2,070.38

That’s a savings of $1,001.12 per month.

In addition to saving $1K per month, the buyer will be building equity in the home much faster at the lower interest rate than they would at a higher interest rate because more their monthly payment will be applied to Principal rather than Interest.

Now you see why buyers will be all over this property like white on rice!

It’s a “win now and win later” situation for my Veteran first-time home buyers, as well as all Veteran home buyers.

If you are a Veteran and thinking about buying a home, email or call me and I will put you in touch with the loan officer that my clients worked with.

Say “Goodbye” to sub-5 percent Mortgage Rates?

Mortgage rates are ridiculously low right now. Words such as “historically” and “unbelievably” are being put in front of “low rate of…” by lenders, the media and consumers alike. But that may changing. And quickly.

Mortgage rates have already gone up well over half of a point in the past few weeks and are over 5 percent. Heck, mortgage ratest recently went up half a percent in just one day! The increase in mortgage rates could be a sign of things to come.

Why? Because mortgage rates are artificially deflated. That’s right, I said it – artificially deflated.

The government has been pumping money into the markets to artificially keep rates down in order to stimulate the housing market and keep the entire US economy from collapsing. Aside from this infusion of borrowed money, there is very little, if anything, that justifies rates being this low.

Here are 3 major issues with what’s going on right now…

1. The government is running out of money to pump into the market. Once there’s no more to dump into the market, you’ll see rates increase almost immediately (funny how the government is starting to run low on cash and rates are already on the rise)
2. The more the US goes into debt by pumping borrowed money into the market and buying up mortgage backed securities (MBS), the more interest rates will go up in the future (for a variety of economic reasons). This problem will be even greater if the government now borrows even more money to keep mortgage rates down even longer (which they’ve already done a few times)
3. The government can only buy so many MBS and once they can’t buy any more, the MBS have to be sold on the traditional secondary market and investors. Investors are becoming less and less eager to buy MBS at such low rates and will stop buying them up until they come with a higher rate of return (aka higher mortgage rate)

Many (including the government) have previously said that rates would stay low for the remainder of 2009. But even some of those folks are starting to question that theory and are now saying that rates will start to rise well before the end of 2009 – as they’re already doing (see the following chart courtesy of BankRate.com).

Nobody has a crystal ball and can say what will happen with certainty. But many signs point to a low chance of rates going down from here or staying put and a much greater chance of them going up. We could very well be in the perfect storm and see 6 or even 7+ percent mortgage rates by the end of the year.

Related Articles

Rates Rocket Up Quickly – BankRate

Mortgage Rates Rising – CNN Money

Mortgage-Backed Securities, the Fed, Ben Bernanke and more – Mortgage News Daily