What’s going to happen to mortgage rates in 2016? Lots of people, very smart people try to anticipate what is coming. We are well aware that they don’t always get it right, but the more we know the better prepared we can be. Loan Rates Have Been Crazy! A quick look at Freddie Mac’s history reveals that it has been more than five years since monthly average rates for 30-year fixed-rate mortgages (FRMs) topped 5 percent. At one point, at the end of 2012, they reached an all-time low of 3.35 percent. Right now they are still very close to that 3.35 percent and have yet to hit 4. How quickly these low rates have become the norm! But don’t forget what normal used to be. If you look back over the decade before the housing and lending crisis really hit in 2008, the average annual rate for a fixed rate mortgage was over 6 percent for seven of the 10 years. In 2000, it was 8.05 percent. That sounds bad, but once again….remember the 80’s….. In 1981, the annual percentage rate average was more than twice that at 16.63 percent. Interest rates were above 10 percent from 1979 – 1990. Don’t let those rates scare you. I have yet to find an economist that expects mortgage rates to rise to those levels again anytime in the near future. So When Will “Normal” Return? There are just too many variables to predict that with any accuracy at this point. The election, oil prices, stock activity and so much more can all make an impact and none of which at this point can accurately be predicted into the far future. What Experts Forecast for 2016 Fannie Mae and the Mortgage Bankers Association (MBA) both have teams of economists dedicated to researching and forecasting trends in housing, including current mortgage rates.(Thank goodness for them…that means we can listen to what they say rather than doing our own research!) The MBA team expects average rates for 30-year fixed rate mortgage to hit 5.1 percent in the last quarter of 2016. It anticipates fairly small increases through 2016’s quarters: Q1 4.4 percent; Q2 4.7 percent; Q3 4.9 percent; Q4 5.1 percent. Fannie Mae however forecasts much smaller rises in current mortgage rates with forecasts much smaller and shallower rises, with only 4.2 percent in the last quarter of 2016. Q1, 4.1 percent in Q2 and 4.2 percent in both Q3 and Q4. So Who’s Right? So we know that both of these research teams are incredibly intelligent and the fact is either could be right (or both could be wrong). Even the Federal Reserve will not confidently predict when its own rates will rise, and it sets those itself. Most experts and economists currently expect to see some rises between now and the end of 2016. However, a few reckon it could be a long time before we get back to normal levels. One, Deutsche Bank equity strategist David Bianco, wrote in early October, “We see a better chance of landing men on Mars before a full normalization of nominal and real interest rates, especially 10-year yields, to historical norms.” What to Watch For Usually, good economic data causes rates to rise, while poor numbers pull the rates down. In particular, low unemployment and inflation at around 2 percent are important, because those are the main criteria the Fed looks at when setting its rates. But good numbers regarding gross domestic product (GDP), incomes, manufacturing, consumer confidence and spending, and so on are all likely to see rates rise sooner and faster. Poor ones generally have the opposite effect, as does bad news about foreign economies. What happened in Greece this past year definitely helped to keep our rates low! What’s going to happen to current mortgage rates in 2016? The short answer is nobody can be sure. If you’re reading this because you need to make an important decision (time the purchase of a home, perhaps, or decide when to refinance an adjustable rate mortgage, we haven’t been much help. However we have given you the signs to watch for! Rates now are still low so it is a great time to buy a home and lock yourself in at those low fixed rates. The team at Foran Realty would be happy to help you with your home search needs on Cape Cod. https://www.lendingtree.com/mortgage-rates/mortgage-rates-what-to-expect-in-2016-article ]]>
What is an Adjustable Rate Mortgage?
Trying to decide what type of mortgage is right for you can be tricky business. So you may be wondering what is an adjustable rate mortgage? An adjustable rate mortgage or ARM, has an interest rate that is linked to an economic index. This means the interest rate, and your payments, adjust up or down as the index changes. There are three things to know about adjustable rate mortgages: index, margin and adjustment period. What is the index? The index is a guide that lenders use to measure interest rate changes. Common indexes used by lenders include the activity of one, three, and five-year Treasury securities. Each adjustable rate mortgage is linked to a specific index. The margin is the lender’s cost of doing business plus the profit they will make on the loan. The margin is added to the index rate to determine your total interest rate. The adjustment period is the period between potential interest rate adjustments. For example, you may see a loan described as a 5-1. The first figure (5) refers to the initial period of the loan, or how long the rate will stay the same. The second number (1) is the adjustment period. This is how often adjustments can be made to the rate after the initial period has ended. In this case, one year or annually. An adjustable rate mortgage might be a good choice if you are looking to qualify for a larger loan. The rate of an ARM is typically lower than a fixed rate mortgage. Remember, when the adjustment period is up the rate and payment can increase. Another reason to consider an ARM is if you are planning to sell the home within a few years. If this is the case you may end up selling before the adjustment period is up. Federal law provides that all lenders provide a federal Truth in Lending Disclosure Statement before consummating a consumer credit transaction. This will be given to you in writing. It is designed to help you compare and select a mortgage.]]>
Mortgages Made Easy for the Self-Employed
Getting a mortgage these days can be tough and it is even tougher for small-business owners. Potential self-employed borrowers usually have variability in their income streams. Today, banks are requiring more financial documentation from all buyers, and self-employed borrowers tend to face more scrutiny. Small-business owners may have a smaller income because they are typically knowledgeable about tax deductions and credits. This often reduces the amount of taxable income they have. Reducing the amount of taxable income on your tax returns means to the lender there is less income to qualify for a loan. There are ways self-employed borrowers can increase their chances of getting a home loan, however. Here are a few tips: What is the lenders history? Find out if the lender has a history of working with self-employed borrowers. Self-employed borrowers should focus more on finding a lender that will understand their situation rather than shop the loan rate. There are individual loan officers who will be able to think out of the box or come up with solutions. The lender you choose is key. Consider portfolio lenders. Portfolio lenders have more flexibility in originating loans because they don’t have to sell the loan to Freddie Mac or Fannie Mae. Portfolio lenders hold their own loans. That makes a big difference in their ability to loan. Another option may to consider credit unions. Many credit unions also keep a good portion of loans on their books. Boost your income. Show you make as much money as possible on your tax return. You might need to amend your tax returns. Some lenders will look at a loan application again if they have sent in amended returns to the government. Sometimes by rethinking deductions and credits on income taxes, a borrower can increase his qualifying income. Of course, with this strategy, the borrower would also face a new tax bill.]]>
What You Need to Know: Reverse Mortgages
You might have seen the ads on TV about reverse mortgages, but what is a reverse mortgage? It is a loan for older homeowners that uses a portion of the home’s equity as collateral. Instead of the homeowner paying the lender, it is the lender that pays the homeowner based on the equity in the home. How much can be borrowed? The amount that can be borrowed in a reverse mortgage is determined by an Federal Housing Authority (FHA formula). The formula considers age, the current interest rate, and the appraised value of the home. What are the requirements for a reverse mortgage? You must be at least age 62 The home must be owned free and clear or all existing liens. Any mortgage balance must be paid off with the proceeds of the reverse mortgage loan at the closing. There are usually no income or credit score requirements. How is the loan repaid? The loan cannot become due as long as at least one homeowner lives in the home as their primary residence and maintains the home in accordance with FHA requirements (keeping taxes and insurance current). The must be repaid when the last surviving homeowner permanently moves out of the property or passes away. The estate will have approximately 6 months to repay the balance of the reverse mortgage or sell the home to pay off the balance. ]]>
Getting Fiancially Ready to Own A Home
Owning a house gives you a sense of fulfillment, and helps boost your self-esteem. It is a long term investment and should not be taken lightly. The present state of your finances is possibly the single most important factor when contemplating home ownership. Before you start shopping for a house, take into consideration the following factors. Have you set aside enough money for the down payment? The amount you need varies based on the price of the home and percentage required by your lender. Zero down mortgages are possible, however the interest rate is typically very high increasing the amount paid out over the life of the loan. Private Mortgage Insurance (PMI) is typically required for this type of loan, again increasing your monthly payment. How high of a mortgage payment can you afford to make ? If you opt for a fixed rate, your payment would remain consistent throughout the period of the loan. This type of loan is favorable for future financial planning. Adjustable rate mortgages make it a bit trickier to predict your monthly payments based on the fluctuating interest rate throughout the duration of the loan. This type of loan could be risky if interest rates rise and your payments increase significantly higher than anticipated. The security of your financial future is paramount when acquiring a mortgage loan. You would not want to enter into this long term investment without stable employment and a definite career path. Most banks and lending companies require a borrower to have been with the same employer for at least 2 years before considering a loan of this nature. Secure financial footing is key when applying for a mortgage loan. When determining your readiness to purchase a home, your credit score is as important as your finances. If you have a low credit score, you’ll attract a higher lending rate. This implies an increase in the amount paid back to the lender over the duration of the loan. An excellent credit score of 720 or above attracts the best interest rates and repayment terms. If your credit score is too low, improve it by:
- Becoming Debt Free
- Removing all inaccuracies from your credit report
- Making all monthly payments in a timely manner — eliminating late payments
- Avoid applying for new loans and opening credit accounts
Low Mortgage Rates: Do You Qualify?
Mortgage rates are at historic lows and there is no better time to buy a home. Do you qualify for those low advertised rates? Will you be able to secure a mortgage? Studies show that 6 in 10 people do qualify for mortgage loans. For those that can’t qualify here are ten reasons why a would-be borrower might face rejection: 1. A low credit score will keep you from getting a mortgage. Typically, a score less than 620 is unacceptable by most lender standards. 2. A maxed out credit card threshold will stop a mortgage in its tracks. If your balance more than 30 percent of the allowable credit lenders will take pause. 3. Multiple credit inquiries may drop your credit score. Limit your credit inquiries to mortgage-only credit pulls within a 30-day period. 4. Did you Co-sign a loan with someone? If so, plan to provide 12 months of canceled checks showing they make the payments to the creditor. 5. Other housing liability payments or a consumer loan for a vehicle may prevent your loan approval. Lenders are looking for you to have double the income to offset each dollar of debt you carry. 6. If you are self-employed you may not be showing income under a Schedule C. This reduces your borrowing power. 7. Claiming many unreimbursed business expenses and losses on your taxes may help you pay less taxes but it also can reduce your borrowing power. 8. If you change jobs often this could also hurt your chances at a mortgage. If you occupational status has changed in the past two years it can hurt you. 9. If you are planning on using cash for your purchase think again. All monies must come from some kind of a bank account. 10. Don’t plan on transferring money from different accounts during the loan process. Be prepared to show full bank statements and a chain of deposits etc. Your mortgage professional should be able to look at your credit, debt, income and assets and make a determination of whether you qualify for a mortgage.]]>
What You Need to Know: Adjustable Rate Mortgages
Trying to decide what type of mortgage is right for you can be tricky business. So you may be wondering what is an adjustable rate mortgage? An adjustable rate mortgage or ARM, has an interest rate that is linked to an economic index. This means the interest rate, and your payments, adjust up or down as the index changes. There are three things to know about adjustable rate mortgages: index, margin and adjustment period. What is the index? The index is a guide that lenders use to measure interest rate changes. Common indexes used by lenders include the activity of one, three, and five-year Treasury securities. Each adjustable rate mortgage is linked to a specific index. The margin is the lender’s cost of doing business plus the profit they will make on the loan. The margin is added to the index rate to determine your total interest rate. The adjustment period is the period between potential interest rate adjustments. For example, you may see a loan described as a 5-1. The first figure (5) refers to the initial period of the loan, or how long the rate will stay the same. The second number (1) is the adjustment period. This is how often adjustments can be made to the rate after the initial period has ended. In this case, one year or annually. An adjustable rate mortgage might be a good choice if you are looking to qualify for a larger loan. The rate of an ARM is typically lower than a fixed rate mortgage. Remember, when the adjustment period is up the rate and payment can increase. Another reason to consider an ARM is if you are planning to sell the home within a few years. If this is the case you may end up selling before the adjustment period is up. Federal law provides that all lenders provide a federal Truth in Lending Disclosure Statement before consummating a consumer credit transaction. This will be given to you in writing. It is designed to help you compare and select a mortgage.]]>