October 19, 2022 · 6 min read
How much can you save with a 1% difference in interest rates throughout a 30-year mortgage? And is it worthwhile to refinance your home loan to achieve these savings? First, it is worth considering that mortgage rates are currently growing. So, it makes sense that many prospective homeowners are asking themselves this question. A single 1-point increase in a mortgage rate may result in only a slight increase in monthly payments. But keep in mind that this increase can add up to a sizable sum of money over time. In light of this, people should examine how much difference a 1% increase in interest rates will make. The answer, thousands of dollars, may come as a surprise to you. It may make people think twice before committing to locking in a mortgage as a result of this change. What occurs next? Continue reading to learn more.
Decreasing Buying Power
Most consumers are unaware of how significant rate increases reduce their purchasing power. More so than an increase in home prices, a rate increase might reduce one's ability to buy. Although it is unlikely that home prices will increase by more than 10% in a year. But, a 1% increase in rates will have the same impact on buyers. The simple fact is that you will be less qualified for a home if rates rise. Additionally, the 11% difference in buying decides if a home will have extra amenities. It may also be the difference between getting an older or a newer home. It is thus best to take the plunge and buy if rates are low enough to make it possible for people to buy the house they want. Of course, it would be better to consider financial security. But experts urge those who are sure they can manage a home and rates look and are still waiting. Experts suggest they speed up your plans to start looking for a home. It would also help to start getting prequalified for a home as early as now.
Slow Market Activity
At the beginning of the year, it was very challenging for buyers to find a home. The situation is still the same, but for a very different reason. In January, mortgage rates were almost at an all-time low. So, the housing market was competitive during that time. Buyers were willing to offer more than the asking price. Some would even waive contingencies to have a chance at winning. Now, mortgage rates are pretty much higher than 6% for the first time since 2008. the challenge now is being able to afford a home in the first place. Demand, where buyers ask if they can afford a mortgage, tends to be what drives the housing market. People also want the mortgage to be more affordable as housing costs rise over time.
Mortgages are becoming more and more out of reach in a situation where the Fed raises rates. It is pretty evident, as they have done in recent months. As a result, many are beginning to notice a decline in demand, a decrease in home sales, and a rent increase. The Fed's rate increase will make the housing market more challenging. And it will also raise the possibility of a total economic recession. While this will reduce inflation, it suggests that the market will continue to slow down. More homeowners will feel discouraged from refinancing. And more potential homebuyers will find that buying a home is out of their price range.
Less Competition
Now that demand is down, it is harder to afford a home. But there is also less competition because of the higher mortgage rates. This situation allows buyers to buy a home for less than the asking price. It also makes sellers pay for closing costs or pay mortgage points to lower high-interest rates a bit. We are currently dealing with a situation where mortgage rates are higher than they were a year ago. But we also witness a slowdown in home prices because the housing market is rebalancing. As a result, buyers might enter a market with no bidding conflicts that we saw last year. Buyers may not even be competing against five other people. So, keep a close eye on monthly payments for those looking for a home right now. Many might be in for a rude awakening when they get a quote for a mortgage rate. So, it would help to update a homebuying budget. By the end of 2022, experts predict rates to rise. Despite the increase, it will not be the same rate it was since the Fed began taking action to fight inflation. But, the rise in rates is also putting pressure on affordability. As rates soar past the 6 percent barrier, competition among buyers may be less intense.
Change in Stock and Bond Value
Stocks lose appeal when investors can make more money on bank deposits and bonds. To put it in perspective, investors can earn the same returns on their capital with less risk. Due to this, some investors decide to liquidate some of their positions. Some will even transfer their proceeds to money market accounts, CDs, and bonds. Additionally, existing bonds lose value as a result of rising interest rates. There is less demand for older bonds with lower rates when an investor can earn a higher return on a new bond. There is still a plus side, even though the price is currently lower. Those who keep their bond until it matures will get its full face value. Bond mutual funds and exchange-traded funds do not work like that. They rarely hold bonds until maturity and instead reprice daily based on the value of the bonds.
Final Thoughts
A 1% difference in interest savings can save thousands of dollars over the course of a mortgage. Still, it might not seem like much of a benefit in the beginning. Potential homebuyers can put these savings right back into their wallet or purse. They can also enjoy their advantages both right away and on a recurring monthly basis. In light of this, securing the lowest mortgage interest rate is beneficial. The basic laws of supply and demand are what determine mortgage rates. Some factors involve inflation, economic expansion, and the Federal Reserve's monetary policy. Additionally, the state of the bond and housing markets are also a few variables at play. Of course, financial health will also affect the interest rate they receive. So, buyers should do their best to keep their finances as healthy as possible.
Joe Paras,
Staff Writer/Resource Analyst
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Helping Homeowner Hopefuls with Low Credit 2 min read
When it comes to purchasing a home, or anything that requires a loan for that matter, a low credit score can really hurt the buyer. Clients may approach an agent feeling downtrodden and discouraged about buying a home if they have a "bad" score.
Luckily, there are some ways that agents can get creative to help these homeowner hopefuls get into a property.
Improving the Score
If the client can - they should improve their credit score ASAP, even by a few points. This shows improvement, more reliability, and gets the ball rolling when it comes to raising a low score. All of which are big wins when it comes to the credit score game. Agents can work with their clients to guide them on why a credit score is so important.
Clients paying off their debt is a great start. Also, they can always ask creditors to drop late payment dings that are very old, etc. - which will help their report look more clean.
Don't forget about credit cards. Remind clients ASAP that overspending on their cards is the number one reason people fall into debt and stay there.
Lastly, don't forget that agents can still serve buyers with less than desirable scores. After all, there's FHA loans and other loan programs out there for buyers that aren't "the ideal candidate". Start with figuring out what your client does bring to the table and how you can best utilize what strengths they do have, financially speaking, and get to writing those offers!
Credit Score Ranges
Generally speaking, credit scores fall into the following ranges:
- 300-579: Poor
- 580-669: Fair
- 670-739: Good
- 740-799: Very good
- 800-850: Excellent
Clients may have heard that a good rule of thumb is a score of 700 and above. While this is a great number to shoot for, and is true, credit scores above 670 are technically considered "good". That being said, if a client is coming in with a low down payment, the higher the score number - the better. This will help buyers get a good rate for their mortgage.
At the end of the day, agents can't solve their clients credit woes for them. But, they can still work with them to find the best possible scenario for their home-buying goals.
By Sarelle Sprague, EliteInformer.com
Editor
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For Clients
Should You Refinance Your Mortgage Right Now? 3 min read
The pandemic has created many changes in the economy, including mortgage rates that have experienced one of the largest increases on record in 2022. Many homeowners are currently paying a rate below 4%, and unless they can lower their rate by at least 0.75 percentage points, it may not make sense to refinance. However, with recent signs of stability in mortgage rates ending last year below the 7%-plus peak from earlier in the year, now might be a good time for some homeowners to consider a refinance option. If you're wondering whether or not you should take advantage of current conditions and refinance your home loan, there are several factors to consider before making a decision.
Eligibility Requirements
Before taking the plunge into mortgage refinancing, be sure to check that you're eligible! Every lender has their own criteria when it comes to who they'll work with - make sure you have all your ducks in a row and meet those requirements before applying. Regardless of who you choose, they'll request details about your income, credit score, and assets – among other things! To make sure all goes according for a successful application process at most lenders, a higher credit score (620+), 20% equity in home ownership, and an up-to-date debt ratio (43%) will give prospective refinancers the best chance of success.
Fees Associated With Refinancing
Second, take into account any fees associated with refinancing. Closing costs such as appraisal and processing fees can add up quickly and cut into any savings from taking out a new loan with a lower interest rate. If there are prepayment penalties on your existing loan, those too should be factored in when considering whether or not to refinance.
When refinancing, most people should expect to pay between 2% - 6 % of the loan's value. This cost covers a variety of services and fees such as an application fee charged by your lender regardless if you are denied or not; appraisal charges ranging from $300-500 depending on location; attorney fees based upon where they reside and also title searches performed during the refinancing process.
Loan Terms
Finally, consider how much you will save in interest over the life of the loan. This is a key factor that can help you determine if it's worth it to refinance your current mortgage. It's important to note that the longer you plan to stay in your home, the more likely you are to benefit from a lower rate, as more of your payments go towards principal rather than interest.
Final Thoughts
Ultimately, refinancing is a big decision and not one to take lightly. If you do decide to look into it further, make sure you understand all of the details before signing on the dotted line so that you can make an informed decision about what will work best for your particular financial situation. Good luck!
Joe Paras,
Staff Writer/Resource Analyst
Continue Reading
Mortgage
Mortgage Rates Increased 1%—What Does This Mean? 6 min read
How much can you save with a 1% difference in interest rates throughout a 30-year mortgage? And is it worthwhile to refinance your home loan to achieve these savings? First, it is worth considering that mortgage rates are currently growing. So, it makes sense that many prospective homeowners are asking themselves this question. A single 1-point increase in a mortgage rate may result in only a slight increase in monthly payments. But keep in mind that this increase can add up to a sizable sum of money over time. In light of this, people should examine how much difference a 1% increase in interest rates will make. The answer, thousands of dollars, may come as a surprise to you. It may make people think twice before committing to locking in a mortgage as a result of this change. What occurs next? Continue reading to learn more.
Decreasing Buying Power
Most consumers are unaware of how significant rate increases reduce their purchasing power. More so than an increase in home prices, a rate increase might reduce one's ability to buy. Although it is unlikely that home prices will increase by more than 10% in a year. But, a 1% increase in rates will have the same impact on buyers. The simple fact is that you will be less qualified for a home if rates rise. Additionally, the 11% difference in buying decides if a home will have extra amenities. It may also be the difference between getting an older or a newer home. It is thus best to take the plunge and buy if rates are low enough to make it possible for people to buy the house they want. Of course, it would be better to consider financial security. But experts urge those who are sure they can manage a home and rates look and are still waiting. Experts suggest they speed up your plans to start looking for a home. It would also help to start getting prequalified for a home as early as now.
Slow Market Activity
At the beginning of the year, it was very challenging for buyers to find a home. The situation is still the same, but for a very different reason. In January, mortgage rates were almost at an all-time low. So, the housing market was competitive during that time. Buyers were willing to offer more than the asking price. Some would even waive contingencies to have a chance at winning. Now, mortgage rates are pretty much higher than 6% for the first time since 2008. the challenge now is being able to afford a home in the first place. Demand, where buyers ask if they can afford a mortgage, tends to be what drives the housing market. People also want the mortgage to be more affordable as housing costs rise over time.
Mortgages are becoming more and more out of reach in a situation where the Fed raises rates. It is pretty evident, as they have done in recent months. As a result, many are beginning to notice a decline in demand, a decrease in home sales, and a rent increase. The Fed's rate increase will make the housing market more challenging. And it will also raise the possibility of a total economic recession. While this will reduce inflation, it suggests that the market will continue to slow down. More homeowners will feel discouraged from refinancing. And more potential homebuyers will find that buying a home is out of their price range.
Less Competition
Now that demand is down, it is harder to afford a home. But there is also less competition because of the higher mortgage rates. This situation allows buyers to buy a home for less than the asking price. It also makes sellers pay for closing costs or pay mortgage points to lower high-interest rates a bit. We are currently dealing with a situation where mortgage rates are higher than they were a year ago. But we also witness a slowdown in home prices because the housing market is rebalancing. As a result, buyers might enter a market with no bidding conflicts that we saw last year. Buyers may not even be competing against five other people. So, keep a close eye on monthly payments for those looking for a home right now. Many might be in for a rude awakening when they get a quote for a mortgage rate. So, it would help to update a homebuying budget. By the end of 2022, experts predict rates to rise. Despite the increase, it will not be the same rate it was since the Fed began taking action to fight inflation. But, the rise in rates is also putting pressure on affordability. As rates soar past the 6 percent barrier, competition among buyers may be less intense.
Change in Stock and Bond Value
Stocks lose appeal when investors can make more money on bank deposits and bonds. To put it in perspective, investors can earn the same returns on their capital with less risk. Due to this, some investors decide to liquidate some of their positions. Some will even transfer their proceeds to money market accounts, CDs, and bonds. Additionally, existing bonds lose value as a result of rising interest rates. There is less demand for older bonds with lower rates when an investor can earn a higher return on a new bond. There is still a plus side, even though the price is currently lower. Those who keep their bond until it matures will get its full face value. Bond mutual funds and exchange-traded funds do not work like that. They rarely hold bonds until maturity and instead reprice daily based on the value of the bonds.
Final Thoughts
A 1% difference in interest savings can save thousands of dollars over the course of a mortgage. Still, it might not seem like much of a benefit in the beginning. Potential homebuyers can put these savings right back into their wallet or purse. They can also enjoy their advantages both right away and on a recurring monthly basis. In light of this, securing the lowest mortgage interest rate is beneficial. The basic laws of supply and demand are what determine mortgage rates. Some factors involve inflation, economic expansion, and the Federal Reserve's monetary policy. Additionally, the state of the bond and housing markets are also a few variables at play. Of course, financial health will also affect the interest rate they receive. So, buyers should do their best to keep their finances as healthy as possible.
Joe Paras,
Staff Writer/Resource Analyst
Continue Reading
Filed Under: Mortgage
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