The number of mortgage applications increased 1.4% as reported by Mortgage Bankers Association. “Mortgage rates declined for the sixth consecutive week, with the 30-year fixed rate decreasing to 6.29 percent, the lowest rate since February 2023. Treasury yields have been responding to data showing a picture of cooling inflation, a slowing job market, and the anticipated first rate cut from the Federal Reserve later this month,” said Joel Kan, MBA’s Vice President and Deputy Chief Economist. “With rates almost a full percentage point lower than a year ago, refinance applications continue to run much higher than last year’s pace. However, there is still somewhat limited refinance potential as many borrowers still have sub-5 percent rates. It is a positive development that there are homeowners who can benefit from a refinance as rates continues to move lower.”

Added Kan, “Purchase applications increased over the week and are edging closer to last year’s levels. Despite the drop in rates, affordability challenges and other factors such as limited inventory might still be hindering purchase decisions.”

The interest rates reported below are from a weekly survey of 100+ lenders by Freddie Mac PMMS. These average rates are intended to give you a snapshot of overall market trends and may not reflect specific rates available for you.

Shop and compare your personalized rates from multiple lenders (Sep 16th, 2024)

Copyright 2024 Freddie Mac. Averages are based on conforming mortgages with 20% down.

How do I get the best mortgage rate?

To get the best mortgage interest rate for your situation, it’s best to shop around with multiple lenders.

According to research from the Consumer Financial Protection Bureau (CFPB), almost half of consumers do not compare quotes when shopping for a home loan, which means losing out on substantial savings.

Interest rates help determine your monthly mortgage payment as well as the total amount of interest you’ll pay over the life of the loan. While it may not seem like much, even a half of a percentage point increase can amount to a significant amount of money.

Comparing quotes from multiple lenders ensures that you’re getting the most competitive mortgage rate for you. And, if lenders know you’re shopping around, they may even be more willing to waive certain fees or offer better terms for some buyers. Either way, you reap the benefits.

What determines my mortgage interest rate?

Your mortgage rate is influenced by a variety of factors that fit into two categories:

• The current economic climate: Factors like inflation and the Federal Reserve’s benchmark rate can have a big influence on current mortgage rates
• The specifics of your financial life: Within the context of the mortgage market, your personal finances help determine your precise interest rate 

While you can’t control the federal funds rate or other economic conditions, you can do things to improve your personal finances before applying for a mortgage loan.

Verify your mortgage eligibility. Start here (Sep 16th, 2024)

Any change to one of the following seven things can directly impact the specific interest rate you’ll qualify for.

Credit Score

Your credit score has one of the biggest impacts on your mortgage rate as it’s a measure of how likely you’ll repay the loan on time. The higher your score, the lower your rates.

If you haven’t pulled your credit score and addressed any issues, then start there before reaching out to lenders.

A better credit score opens up more loan options and lower interest rates in any housing market.

Down Payment

In general, the higher your down payment the lower your interest rate, because you’re viewed as a less risky borrower than someone who finances the entire purchase.

If you’re unable to put at least 20 percent down, then most lenders require Private Mortgage Insurance (PMI), which will be added to the cost of your overall monthly mortgage payment.

A lot of first-time homebuyer programs — such as statewide and local down payment assistance — can help you come up with a bigger down payment.

Loan Type

There are different types of mortgage loans on the market with different eligibility requirements. Not all lenders offer all loan types, and rates can vary significantly depending on the loan type you choose.

Some common mortgage loan products are conventional, FHA, USDA, and VA loans.

Within most of these loan types, you can choose a fixed-rate mortgage (FRM) or an adjustable-rate loan (ARM). ARM rates are often substantially lower than fixed rates, but keep in mind you’ll only hold that low rate for a few years (typically 5, 7, or 10) before it has the potential to increase.

Verify your mortgage eligibility. Start here (Sep 16th, 2024)

Loan Terms

Your loan term indicates how long you have to repay the loan. Shorter-term loans tend to have lower interest rates, but higher monthly payments when compared to the standard 30-year mortgage term. 

Exactly how much lower your interest rate and how much higher the monthly payment will be  depends a lot on the specific loan term and interest rate type you choose.

Interest Rate Type

There are two basic types of interest rates: fixed and adjustable. 

• Fixed interest rates stay the same for the entire loan term
• Adjustable rates have an initial fixed period (five or seven years is common), but will fluctuate after that period based on the current market rates for the remainder of the loan

Some home buyers take advantage of the low intro rate on an ARM if they know they’ll move or refinance before the initial rate expires. For many buyers, though, a fixed-rate loan is preferable as it offers predictability and stability over the life of the loan.

Loan Amount

The loan amount will differ from the price of the home. It’s the total amount you are borrowing, including any closing costs your roll into the price of the home, less than down payment.

If you roll the closing costs and other borrowing fees into your loan, you may pay a higher interest rate than someone who pays those fees upfront. Loans that are smaller or larger than the limits for conforming loans may pay higher interest rates too.

Location

Interest rates vary slightly depending on the state you live in as well as whether you’re looking to purchase rural versus urban real estate. Some loan products like USDA loans offer generally lower rates than conventional mortgage options for eligible borrowers.

Verify your mortgage eligibility. Start here (Sep 16th, 2024)

Why does my mortgage interest rate matter?

Your mortgage interest rate impacts the amount you’ll pay monthly as well as the total interest costs you’ll pay over the life of your loan. While it may not seem like a lot, a lower interest rate even by half of a percent can add up to significant savings for you.

For example, say a borrower with a good credit score and a 20 percent down payment   takes out a 30-year fixed-rate loan for $300,000. In this case, an interest rate of 4.75% instead of 5.25% translates to more than $90 per month in savings — in the first five years, that’s a savings of $5,500. 

It’s equally important to look at the total interest cost of your loan. In the same scenario, a half percent decrease in interest rate means a savings of almost $33,000 in total interest owed over the life of the loan.

The cost savings of different interest rates for a $300K 30-year fixed loan

Current mortgage interest rates

Freddie Mac’s weekly report covers mortgage rates from the previous week, but interest rates change daily — mortgage rates today may be different than reported.

To find out what rates are currently available, compare quotes from multiple lenders.

Verify your mortgage eligibility. Start here (Sep 16th, 2024)

Mortgage interest rate FAQs

Will interest rates rise in 2024?

Interest rates change daily. They have trended upward in 2024, bouncing back from the record lows of the pandemic era.

What are interest rates based on?

Fixed mortgage interest rates operate in their own market. They’re not directly tied to the Federal Reserve’s fed funds rate, although this benchmark rate can help influence the direction mortgage rates are headed. Other factors that influence mortgage rates include the health of the economy, the inflation rate, and how much demand lenders are seeing for home buying and refinancing. Only adjustable-rate mortgages are directly tied to market indices and therefore to the Fed’s benchmark rate.

How does your credit score affect your rate?

Your credit score measures your likelihood of making continuous, on-time mortgage payments. Homebuyers with higher credit scores seem less risky to lenders. So, in general, the higher your credit score, the lower your mortgage rate. But other factors such as your personal debt, down payment size, and loan program also influence your rate.

What is an APR?

APR stands for annual percentage rate. Your mortgage interest rate is part of your APR, but APR also includes additional borrowing costs such as mortgage insurance premiums or other fees that make your loan possible. Your APR will be higher than your interest rate.

How many times will the Fed raise rates in 2024?

The Federal Open Market Committee (FOMC) meets every six weeks and could change the Fed’s benchmark rate at any meeting. With inflation at levels not seen in 40 years, most economists expect multiple rate hikes this year.

What are today’s interest rates?

Rates change every day. To see weekly average rates, check out Freddie Mac’s Primary Mortgage Market Survey. These rates show the overall climate of the mortgage market, but your individual rate will depend on your personal finances.

Is a 3.5% interest rate good?

In today’s climate, 3.5 percent interest on a mortgage is below average. In 2020 and 2021, during the record low rates of the pandemic, 3.5 percent was above average for a new 30-year mortgage.

Are mortgage rates high right now?

Rates have been higher — a lot higher — than they are today. In October of 1981, for example, average rates topped 18 percent. Forty years later, in October of 2021, average rates on 30-year mortgages were below 3 percent. So, most homebuyers today are paying rates much closer to record lows than to record highs.

Shop and compare your personalized rates from multiple lenders. (Sep 16th, 2024)

The post Current Mortgage Interest Rates | September 2024 first appeared on My Mortgage Insider.

Not a lot of lenders offer short-term mortgage loans. The good news is you can create your own 5-year fixed-rate mortgage and own your home outright in five years.

Click here to check rates on short-term loans (Sep 16th, 2024)

Pros & cons of shorter-term mortgages

But shorter-term mortgages also have a catch: To tap into their interest savings you’d need to make higher monthly mortgage payments.

That’s why 30-year mortgages remain the most popular loan type. Home shoppers who can easily afford a 20, 15, or 10-year mortgage’s higher payments may wonder about the savings a 5-year mortgage could provide.

Who offers 5-year mortgages?

“I don’t know anyone who sells them,” says Chris Thomas, loan originator at America’s Mortgage LLC in Wheat Ridge, Colo.

You might be able to find a 5-year fixed refinance home loan somewhere. But they are rare since most consumers need the lower monthly payments a 15- or 30-year mortgage provides.

Local banks or credit unions in your community might be able to help you since they have more flexibility and power to customize loan terms. Mortgage brokers who work with many different lending sources might also be able to find the right 5-year mortgage loan out there for you.

Create your own 5-year fixed mortgage

If you can’t find a 5-year fixed mortgage loan, you could still create the same savings strategy by getting a longer-term loan and paying more each month. You’d get the loan paid off early while claiming significant savings in interest.

For instance, if you took out a 15-year fixed loan for $200,000 at 3.25 percent, your monthly principal and interest payment would be $1,405.

Even though it’s a 15-year loan you could make larger monthly payments to knock out the balance in five years. To do this you’d need to add an extra $2,211 a month — making your mortgage payment $3,616.

How much could you save in interest by doing this? Over $36,000. Plus, you’d own the property outright 10 years sooner.

Conventional loans let you pay as much extra principal per month as you want without penalty. The end result is essentially a 5-year fixed-rate mortgage.

And this approach has another benefit: Flexibility. To keep this loan up to date, you’d be required to pay only the original payment of $1,405 per month.

So if you had an unexpected financial challenge, you wouldn’t be stuck trying to pay $3,616 a month to keep a 5-year loan up to date.

Keep in mind these payment quotes do not include homeowners insurance, property taxes, private mortgage insurance premiums, or other fees you may need to add on.

Other ultra-short loan terms

Quicken Loans offers an 8-year fixed-rate mortgage through its YOURgage program. This loan program allows borrowers to choose any loan term from eight to 29 years. Quicken’s 8-year terms option was the lowest fixed-rate term we’ve found from lenders online.

How much do you save with an 8-year loan? Let’s say a borrower takes out a $200,000 mortgage on an 8-year fixed-rate loan at 3.25% percent and 70 percent loan-to-value (LTV), the payments would be around $2,350 monthly.

When you compare that to a 30-year fixed loan at 3.5 percent, the cost would be about $900 per month.

(These are hypothetical rates and not ones displayed on Quicken’s site. Your rate might be different.)

This creates a huge difference in monthly mortgage payments — $2,350 for the 8-year loan vs. $900 for the 30-year loan. But the savings in interest from making such a big payment would be astronomical:

• 8-year term: $29,000 in interest
• 30-year term: $123,000 in interest

That’s a savings of $94,000 to borrow the same loan amount of $200,000.

Remember, you can achieve similar savings by getting a longer-term mortgage and paying a lot of extra cash on the principal each month. You don’t have to lock in an 8-year fixed-rate mortgage.

The other kind of 5-year mortgage: The adjustable-rate mortgage (ARM)

Most mortgage lenders do offer 5-year Adjustable Rate Mortgages (ARMs). The rate is fixed for five years, but then the rate can go up if you still have the loan by then.

Keep in mind that the loan isn’t paid off after 5 years — that’s just when the interest rate starts to fluctuate.

ARM loans leave borrowers vulnerable to potential increases in rates – and sometimes large increases — depending on market conditions when the introductory 5-year rate expires and depending on the ARM’s rate caps.

“We try to talk everyone out of getting ARMs right now because the index — which used to determine the interest rate after it changed — is based on short-term interest rates,” Thomas says.

“When inflation kicks in, the rates are going to go up,” he says.

The ARM loan’s new rates are determined by taking the index (whatever that happens to be when the rate changes) and adding a margin. That margin is usually 1.75% for Fannie Mae or Freddie Mac loans, but it could be more, depending on the loan.

The total of those two numbers (index + margin) equals determines the new interest rate after the ARM’s introductory lower interest rate expires, Thomas states.

For instance, if you take out a 5-year adjustable-rate mortgage, the loan has a fixed rate for five years. Let’s say that the initial rate is 3 percent. Now fast forward five years. The loan’s margin is 1.75% (which never changes) and the index has risen to 2.5%. The fixed-rate of 3 percent would become a variable rate of 4.25 percent.

Click here to check adjustable mortgage rates. (Sep 16th, 2024)

Rate caps on 5-year adjustable mortgages

“After the first 5 years is up, the rate can change once a year or once every six months, depending on the loan product,” Thomas says. “The amount it changes depends on the caps.”

There are three caps for every ARM loan:

• Initial cap: The first cap tells how much the rate can change the first time it changes — after the intro rate expires.
• Subsequent cap: The second cap tells how much your rate it can change every time after that.
• Lifetime cap: The third cap tells how much the rate it can change over the life of the loan (the maximum amount it can change).

As an example, if the caps are 2/2/5, your loan’s interest rate could change 2 percent after the introductory interest rate expires. Then it could change 2 percent every year after that (assuming it only changes once a year). The most it can ever change from the original rate is 5% percent.

“In my experience, no one ever asks about the index, the margin, or the caps,” Thomas says. “Most lenders probably don’t even know what those terms mean.”

“People only think about the fact that they can save a little bit of money to start, and that is not the way to think about a loan that is going to last for 30 years,” he adds.

Fannie Mae requires a minimum 5 percent down payment on ARM loans for purchasing a primary residence. You’d need to make a 10 percent down payment if you’re getting an ARM to finance a second home.

Click here to see today's low mortgage rates (Sep 16th, 2024)

5-year ARM rate comparison

Typically a 5-year ARM offers a lower interest rate than a 30-year fixed-rate mortgage. But with current mortgage rates hovering around historic lows, today’s 5-year ARM loan intro rates have aligned more closely with 30-year fixed rates.

So who would be a good candidate for a 5/1 ARM with its variable rate after the first five years?

“I would say that the only people who should get one are people who absolutely, positively know that they are going to sell the house before the rate changes,” Thomas says.

“ARMs are designed to go up,” he says. “The industry term for the initial interest rate is the ‘teaser rate.’ he says. Lenders are teasing consumers into thinking they are getting a good deal, and they are not.”

Check mortgage rates for short-term loans

Home buyers and refinancing homeowners can benefit from today’s low mortgage interest rates. Whether you are looking for a short-term fixed-rate, or an adjustable-rate with an initial fixed period, rates are ultra-low.

But always remember: Along with the market, your mortgage rates will depend on your personal financial situation and borrowing decisions:

• Credit score: Improving your credit score will help you access today’s best rates on all types of mortgages.
• Down payment: Your down payment will help determine your interest rate, too. A larger down payment can lower interest rates and open up more loan types.
• Discount points: By paying more cash upfront you can lower the annual percentage rate for the life of your loan. One point costs 1 percent of your loan amount and lowers your rate by 0.25 percent.
• Loan type: If your credit score doesn’t qualify you for a conventional loan with low-interest rates, consider an FHA loan, USDA loan, or VA loan. With government backing, these loans can offer more competitive rates primarily for single-family primary residences. VA loans are open only to veterans and active-duty military members.

Click here to start your 5-year mortgage rate quote request (Sep 16th, 2024)

Calculating your actual monthly payment

Your monthly mortgage payment depends on your interest rate, loan amount, and loan term. Before going under contract on a home, spend some time with a mortgage calculator, experimenting with different mortgage terms.

If you can’t afford the payment on a 10-year or 15-year mortgage, consider going with a 20-year or 30-year term which will offer lower monthly payments.

As you consider these estimates, remember that your actual monthly payment will likely be higher than the calculator shows because of extra charges such as:

• Homeowners insurance premiums: Most loan servicers let you pro-rate your annual homeowners insurance premiums into 12 installments added to your mortgage payment. This money goes into escrow and will be ready when your homeowners policy comes due.
• Local property taxes: Loan servicers will also collect your annual city or county property taxes as monthly installments paid into escrow.
• Mortgage insurance premiums: Depending on your loan type and down payment size, you may need to buy mortgage insurance which provides protection for your lender in case you default on the loan.
• Other fees: It’s possible to add homeowners association dues or home warranty premiums onto your monthly mortgage payment.

It’s common for homeowners to pay several hundred dollars in taxes, premiums, and fees each month — in addition to the actual mortgage payment which goes onto the real estate debt.

Closing costs: The other expense for home buyers

Interest rates, loan terms, and extra taxes and fees influence your mortgage for the life of your loan. But borrowers have to deal with closing costs before finalizing a new purchase or refinance.

Closing costs include a lender’s origination fee and home appraisal fee. They also include attorney’s fees for title searches and deed transfers.

Discount points — which can provide a lower interest rate — will also be due at the closing table. VA loans require a VA funding fee at closing.

All in all, it’s not uncommon to pay 2 to 5 percent of the loan’s value in closing costs. For a $200,000 loan, 5 percent adds up to $10,000.

Sometimes you can negotiate with the home’s seller to pay closing costs, especially if the seller is especially motivated to close the deal. Some loan options allow you to finance some or all of the costs.

No matter what type of mortgage and loan term you’re considering, you’ll also need to be prepared to cover closing costs.

Click here to check rates on short-term loans (Sep 16th, 2024)

The post 5-Year Fixed Mortgage Rates & Loan Programs first appeared on My Mortgage Insider.

Ready to refinance? Start here. (Sep 16th, 2024)

VA streamline: An easier approval process

The term “streamline” describes this loan product well. It requires much less documentation than a standard refinance. It’s the perfect way for current and former US military veterans to save money on their monthly mortgage payments without a lot of time and paperwork. A short list of VA streamline advantages are as follows.

• No income documentation is required
• No bank statements or other asset documentation is required
• No appraisal required
• Lenient credit score minimums
• You can roll all closing costs into the new loan, eliminating out-of-pocket expenses
• You can finance energy efficiency improvements into the new loan

As far as refinance programs, there is really no other loan product that is quite as easy as this one.

How can I use a VA streamline refinance?

When current mortgage interest rates are low, it’s often a good idea to refinance. A refinance is simply a new loan that pays off the existing loan. The new loan has a lower rate or otherwise improves the homeowner’s situation.

The Veteran’s Administration developed this refinance program in 1980 to help our nation’s veterans get a lower mortgage payment with reduced hassle, time, and expense.

A VA streamline refinance allows the borrower to:

• Lower their rate.
• Reduce their monthly payment.
• Convert an adjustable rate loan into a fixed rate.
• Finance energy-efficient repairs.
• Shorten or lengthen the loan term (e.g. 15 year to 25 year, or 30 year to 15 year)

The biggest advantage of a VA streamline over other refinance programs is that no income or asset documentation is required, nor is an appraisal. Underwater homes are eligible, because value of the home is not considered.

Check your VA home loan eligibility. Start here (Sep 16th, 2024)

VA streamline rates

VA loan rates are typically much lower than even “standard” rates published by Fannie Mae and Freddie Mac. According to Ellie Mae’s Origination Report, VA rates averaged 0.3% lower than conventional Fannie/Freddie rates in March 2021.

That means VA loan holders have access to very low mortgage payments compared to those without a VA loan. Why are rates so low for VA? These loans are heavily backed by the federal government. Lenders view these loans as low risk, and pass the savings on to the borrower.

Click here to get your free VA streamline refinance rate quote. Start here (Sep 16th, 2024)

VA streamline requirements

VA to VA. The VA streamline program is available to refinance existing VA home loans. The borrower may not use the program if they have an existing FHA, USDA, or Fannie Mae/Freddie Mac loan. The VA streamline is strictly a VA-to-VA program. If your loan is not VA-backed, see check out the FHA Streamline Refinance and Conventional Refinance. If you have another loan type, but want a new VA loan, consider a VA cash-out loan. Click here to compare the VA streamline and VA cash-out loan programs.

Reduction in Payment.  To qualify for the VA streamline program, the monthly payment on the new VA streamline loan must be lower than the previous payment.

Waiting Period. The closing date of the new VA streamline must be at least 210 days after the first payment of your existing VA loan. In addition, you must make 6 full payments on your current loan before you are eligible for a VA streamline.

ARM to Fixed. There is an exception to the “reduction in payment” rule when refinancing from an adjustable or hybrid loan to a fixed rate. Going from an ARM to a fixed rate often increases the payment. However, this is allowed since the homeowner receives a more stable loan product.

Occupancy.  The borrower must certify that the property is either currently or previously occupied as a primary residence. In some cases, the veteran must move out of the home due to PCS orders or other circumstances. In these cases, a VA streamline may still be available.

VA Loan Payment History.  To qualify for the VA streamline loan, there can be no more than one payment in the previous twelve months that was more than 30 days past due. If you do have a 30-day late mortgage payment, you’ll have to wait until you have built a clean 12-month history.

No Cash Out.  The VA streamline loan does not allow the borrower to take out a bigger loan they currently owe in order to receive cash at closing. However, the VA cash-out refinance does allow it.

Cash Needed to Close a VA Streamline. In most cases, all closing costs can be rolled into the new loan, so there is little or no out-of-pocket expense. Ask your lender for a lender credit for all or part of the closing costs. This can reduce the amount of the new loan.

Appraisal. The VA does not require an appraisal, but some lenders will require one. If your home is underwater (i.e. you have negative equity), it’s best to find a lender that does not require an appraisal.

Minimum Credit Score for a VA Streamline. VA streamline refinance guidelines say no credit report is required. However, most or all lenders will require a credit report to prove you are in good standing on your VA mortgage and to prove sufficient credit history. While the VA does not set a minimum credit score, most lenders require between 600-620 to qualify.

Check your VA home loan eligibility. Start here (Sep 16th, 2024)

Questions & answers about the VA streamline loan program

I have a 5/1 ARM loan, can I use the VA streamline loan program?

Yes. A 5/1 loan is a hybrid loan and is considered an adjustable-rate mortgage. Other hybrids include 3/1, 7/1, or even 10/1 where the interest rate is fixed for an initial period. Even though the payment is fixed for a time, the rate will eventually adjust. A VA streamline is a great way to refinance into a fixed-rate loan.

What credit score do I need?

Each lender sets its own minimum credit score for this program. Typically, that score is 640, but a few lenders allow a 620 or even lower.

My property is a rental. Can it qualify?

As long as you can prove the home was once your primary residence, the property should be eligible.

Will my lender need a new title report?

Yes, the new loan will need a new title insurance policy. The title report will provide evidence to the lender that there are no outstanding judgments or liens that will affect the new loan.

Can the lender use my old certificate of eligibility (COE)?

Yes, in fact, you don’t need a COE at all. Your current VA loan proves that you are eligible.

Do I have to use the same VA lender I used with my original VA loan?

No, you can use any lender that is authorized to underwrite and approve VA loans.

Can I skip two payments with a VA streamline loan?

It may seem like it but in reality, no payments are missed when using a VA streamline. At your closing, the old VA loan will be paid off entirely which includes accruing interest. In addition, some interest will be prepaid on the new loan.  If both interest payments were included in your new loan, the payments were made, just not out of your pocket.

My lender wants an appraisal, paystubs, bank statements and other things that are not required. What’s going on?

Even though the VA does not require these items, a VA lender may impose its own “overlays,” meaning additional rules.

If a particular lender overlay is keeping you from using the VA streamline refinance program, click here to find a lender who has different rules.

I’m ready to apply for my VA streamline refinance

VA streamline rates are very low and are helping thousands of current and former US military servicemembers lower their housing costs. Lenders are eager to help with these loans. There is so little documentation needed that mortgage companies can get applications through the system very quickly.

There are very few reasons a homeowner would not to apply for this payment-reducing program. It’s a great value and easy to qualify for.

Click here to check your VA streamline rates. Start here (Sep 16th, 2024)

The post VA Streamline (IRRRL) Refinance Loan: Easier Refinancing for Veterans first appeared on My Mortgage Insider.

That’s a fair question, and a good one. Adjustable rate mortgages can be a good choice for borrowers who anticipate financing a property for a relatively short period of time, say three to five years. ARMs can offer lower, “teaser” rates that are usually lower than fixed mortgage rates. And when caps are applied, an ARM may be the better overall choice.

Check your eligibility for an ARM mortgage. Start here (Sep 16th, 2024)

What is an adjustable-rate mortgage (ARM)?

Adjustable-rate mortgages offer an introductory rate for a set number of years. After the introductory period ends, the home loan’s rate will adjust according to overall mortgage rates.

ARM loans typically offer introductory rates that are lower than the rates available for fixed-rate mortgages, which translates to lower monthly payments — during the initial period.

These initial “fixed” periods can range from 3, 5, 7 or even 10 years. The initial interest rate then adjusts, usually once per year. These loans (also called “hybrid ARM” mortgages) can make sense depending on your plans over the first 3 to 10 years of the loan term.

Check today's mortgage rates here (Sep 16th, 2024)

An ARM might be a good idea when…

You will be receiving a windfall

If you plan to receive a large amount of money in the next 5 years or so, an ARM might make sense. Say that you have a piece of real estate with a lot of equity that you plan to sell. Or, you will receive an inheritance. Maybe you will sell your business in 5 years.

In any of these circumstances, you could take a very low initial rate, then pay off the mortgage loan toward the end of the fixed period, before the rate changes.

You plan to sell the home early

If you plan to sell the home in the next 5 to 7 years, an ARM might be a good choice. Perhaps you are a first-time buyer looking for a smaller property, but plan to move into a bigger home as your family grows. Or your job will move you out of the area in the next few years.

In these cases, it might make sense to cash in on a lower interest rate for a few years. Just be careful that your plans are fairly certain. If they’re not, you may want a fixed-rate loan or an ARM with a very low rate along with low rate caps.

For more about how ARMs work, see our ARM primer or contact a trusted mortgage lender.

You want a tax deduction or will soon retire

You might have the cash to buy a home outright, but want a short-term loan for the mortgage interest tax deduction. Although this website does not give tax advice, it’s a fact that the mortgage interest deduction can have a big effect on the amount of taxes you pay. Check with your tax advisor.

If you make a lot of money now but will retire in 3 to 10 years, an ARM might make sense. You may be able to use the tax deduction to reduce your current adjusted gross income (AGI) thereby reducing your tax bill.

When you retire and your income decreases, you could pay off the loan amount if you no longer need the tax deduction.

Rate caps determine how much your ARM can change

An ARM has another important series of numbers that set limits on how much your loan rate can change. This series of numbers shows your rate caps.

For example, if you have an ARM with a 2/2/5 cap, your rate cannot change by more than:

• 2% after the fixed-rate period ends
• 2% for each adjustment period
• 5% over the life of the loan

So, with a 2/2/5 cap on a 5/1 ARM with an introductory interest rate of 3%, your loan’s rate:

• Would remain at 3% for the five-year introductory period
• Could reach as high as 5% after the intro rate expires
• Could increase by up to 2% at each subsequent yearly adjustment

Could never surpass 8% during the life of the loan

These lifetime caps on ARMs protect borrowers from out-of-control rate increases, but even a 5% rate increase would mean much higher monthly payments.

You’d want to refinance out of your ARM before its intro rate expires, especially during a high-rate environment.

So is an ARM for everyone?

For most home buyers, a fixed-rate mortgage will be the loan of choice since it still offers incredible interest rates and stability for the future.

With an ARM, rate adjustments can mean an eventual higher interest rate and higher monthly mortgage payment. If rates rise then you could end up with an expensive new rate (and higher loan payments) once the introductory rate period ends.

Still, there are many situations in which an ARM might make sense. Especially when interests are high, ARM rates are likely to be lower than fixed interest rates and might help aspiring buyers to become homeowners.

A mortgage professional can help you determine which type of mortgage is the best choice for you, based on your personal finances and current market conditions.

Check your eligibility for an ARM mortgage. Start here (Sep 16th, 2024)

The post When Is an Adjustable Rate Mortgage (ARM) a Good Idea? first appeared on My Mortgage Insider.

Q: I’m pre-qualified for a mortgage, but I haven’t found a home yet. Should I be concerned if interest rates are rising?

A: It’s true that increasing rates can diminish your buying power. A higher rate means either a higher monthly payment or a lower loan amount for which you can qualify.

Check your home buying eligibility. Start here (Sep 16th, 2024)

To add to the stress, interest rates change throughout each business day because they are pinned to active markets. Mortgage interest rates are much like the stock market in that way.

While it can pay to watch rates, it can be counterproductive to watch them too closely before you have an accepted offer on a property. The last thing you want to do is choose the wrong property because you want the perfect rate. Buying the wrong home can be way more costly.

The best thing to do is find the right property that will suit you for years to come. Then, lock in your rate as early as possible, even if you think the rate may go down.

Don’t get greedy. Mortgage experts spend their lives trying to predict rates, and even they are blindsided by interest rate swings. Once you’re locked in, you can kick back, relax, and have peace of mind knowing you got a great rate.

But, make sure your lock expiration is at least a week or two after you think you are going to close. In today’s lending environment, a number of things can happen along the way to delay your closing.

Even if you’re a golden mortgage applicant, the seller of the home you are buying may not be so golden, and be delayed in moving out. You don’t want to lose your locked rate because you didn’t leave room for delays.

Check your home buying eligibility. Start here (Sep 16th, 2024)

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The Federal Trade Commission tells mortgage shoppers to obtain information from several lenders and to make sure to get current mortgage interest rates and to ask whether the rates being quoted are the lowest for that day or week. You’re also supposed to ask about the loan’s annual percentage rate (APR). The APR takes into account the interest rate along with any points, broker fees and certain credit charges you may have to pay.

Check your home buying eligibility. Start here (Sep 16th, 2024)

Mortgage rates vary only a little from lender to lender

Scott Sheldon, senior loan officer at Sonoma County Mortgages in Santa Rosa, California, says that in today’s mortgage world there really isn’t a big difference in the interest rates given out from one lender to another.

“Most lenders will give a quarter to three-eighths of a percentage point within Freddie Mac’s daily mortgage rates,” he says.

Freddie Mac, a neutral third party, is the best barometer of what the rates will be, Sheldon says. You can catch those on the Freddie Mac website through its Primary Mortgage Market Survey, in which lenders are surveyed each week on the rates, fees and points for the most popular mortgage products.

Sheldon believes your best option is to pick a person that you feel the most comfortable with and who is the most responsive, and communicative and you feel will provide the most clarity, rates, and how the numbers interrelate.

“You just won’t see one lender have radically priced different rates these days,” he says.

The reason for that is that lenders can no longer give great deals to their clients, even if they wanted to. When the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) came out, it changed the lending market. Lenders can’t adjust what they make based on their client.

Check your home buying eligibility. Start here (Sep 16th, 2024)

Challenges in underwriting

Sheldon adds that the underwriting software used today has such a definite checklist that it sometimes doesn’t account for certain situations.

Case in point, he says, you could have someone looking for a $400,000 loan. The person has $1 million in the bank and an 800 credit score with a great income. However, their debt-to-ratio income is 46 instead of the required 45.

“That person will have a heck of a time getting a loan because he doesn’t fit into the checklist,” he says.

On the other hand, someone who has gone through bankruptcy, has a 620 credit score and a pattern of not paying their bills, and have a debt ratio of 50 can get approved for an FHA loan, a government-sponsored program offered by most lenders today.

Understanding the mortgage is important

Part of the problem is that consumers get confusing information during the whole process of trying to buy a house — especially in the disclosure forms with the terms and costs of mortgage loans.

Congress directed the Consumer Financial Protection Bureau to change those forms by August 1, 2015, to simplify things and reduce paperwork. The new forms will include a loan estimate, which should be given three business days after an application. It should use clear language and design that will help consumers understand complicated mortgage loan and real estate transactions.

Until then, Sheldon advises people to do a lot of homework on the different types of loans and the experience of the loan officers before choosing a mortgage.

“The interest rate and payments are important,” Sheldon says, “But the ability to qualify for that checklist is where you should be focusing on.”

Check your home buying eligibility. Start here (Sep 16th, 2024)

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Fannie Mae polls 1,000 U.S. consumers at random each month to determine overall sentiment about the housing industry and economy. One of the questions the agency asks is whether mortgage rates will rise or fall over the following 12 months.

Check your home buying eligibility. Start here (Sep 16th, 2024)

96% of consumers misjudge the market

Data going back to 2010 indicates that 80-90% of consumers typically predict higher or similar rates on the horizon. It is rare if more than ten percent of consumers think lower rates are coming.

But that’s exactly what’s happening now. A year ago in February 2014, a whopping 89% of consumers thought rates would rise or stay the same in one year’s time. Just 4% said mortgage rates would drop. The remaining 7% did not even venture a guess.

The data suggest that consumers rarely plan on lower rates. Most assume the rate they have now will be the same in 30 years as their loan is coming to an end. The truth is that most people keep their mortgages less than seven years.

Part of the reason is real estate churn. People have to move or sell their home for another reason, then buy a home in another area.

A more often occurrence is that mortgage rates unexpectedly drop. Even those with mortgages just a year old can’t resist the newfound savings.

Check your home buying eligibility. Start here (Sep 16th, 2024)

Unplanned refinances can pay off

Homeowners are reluctant to pull the trigger on a refinance when they just purchased or refinanced a year or two ago. It is understandable. There are costs involved, plus the applicant may have to provide a few documents.

But a refinance can really pay off when 30-year rates hit the 3s. In early 2014, rates hovered around 4.3%. The latest Freddie Mac average rate is 3.59%. A borrower with $250,000 could save over $1,700 per year with a refinance.

That’s $12,000 over the seven-year average life span of a mortgage. Even after paying for closing costs, it’s very easy for a refinance to pencil out.

Lender-paid closing costs make the decision to refinance easier

But not every refinance comes with closing costs that the borrower has to pay. Rates are so low that lenders are giving applicants low rates and paying their closing costs too.

Mortgage lenders receive thousands of dollars when they sell the loan after closing. And, they are limited to how much they can make on a loan. Lenders can give you an interest rate that yields a slightly higher profit, and the must use the extra money to pay your closing costs. The interest rate you receive could be slightly higher than market rates, but still much lower than your current rate.

The result is often a zero out-of-pocket closing cost loan.

When the borrower drops his or her rate without having to pay the fees in cash, refinancing again starts to make a whole lot of sense.

Check your home buying eligibility. Start here (Sep 16th, 2024)

Low-doc mortgages help homeowners take advantage of unexpectedly low rates

There are two refinance programs that require almost no documentation whatsoever. Fear of providing loan paperwork should not be a deterrent for homeowners who qualify.

The FHA streamline refinance is for homeowners with an FHA mortgage who want to drop their rate and payment quickly. Homeowners who bought or refinanced their home at least seven months ago can apply.

This refinance does not require income documentation and is very lenient when it comes to credit standards. Even homeowners who have had one late mortgage payment in the past year can qualify.

Likewise, the VA streamline refinance is a great option for those who have recently finalized a mortgage transaction. VA mortgage holders can refinance with no income or asset documentation. And, there’s a VA streamline does not count as a subsequent use of the VA loan benefit. The upfront funding fee stays at 0.50% instead of the 3.3% required when opening a new VA loan to buy a home.

Check your FHA streamline refinance eligibility today (Sep 16th, 2024)

The post Consumers Eternal Pessimists: 96% Bet Against Low Rates first appeared on My Mortgage Insider.

Mortgage rates for 30-year fixed loans have rested in a tight range through 2014. Despite recent stability, rates cannot remain at these levels forever. They are guaranteed to rise. This is why the 30-year fixed mortgage is a powerful tool for today’s home buyers and refinancing households.

Check your home buying eligibility. Start here (Sep 16th, 2024)

30-Year fixed mortgage rates today: Unmatched stability

Most mortgage consumers take for granted the availability of the 30-year fixed-rate home loan. But long-term fixed-rate mortgages have only been around since the Great Depression, when the U.S. government sought to stabilize the national economy. Heavy government involvement in the housing industry resulted in finance agencies like FHA and Fannie Mae. These organizations made fixed-rate mortgages possible.

In the pre-Depression era, homeowners would re-negotiate their mortgage rate and term every year. If a homeowner lost a job that year, the lender would foreclose. If market interest rates went up, the lender hiked the homeowner’s rate.

This is vastly different than the experience of today’s homeowner. Current lending regulation favors stable products for consumers, even at the expense of lending institutions. If market rates double or triple in the next few years, the homeowner continues to pay the same rate of interest. The mortgage note – the contract the borrower signs at loan closing – guarantees a stable payment.

This is a monumental benefit to today’s mortgage consumer as market rates hit rock bottom. Home buyers can lock in today’s rate and keep it until they pay off the loan and own the home outright. The 30-year fixed-rate mortgage is actually a revolutionary product that makes owning a home less risky than even renting.

Adjustable-rate loans: Many owners come out on top

In many countries today – Australia, Spain, and Ireland for instance – a full 90% of mortgages carry a variable rate. Homeowners are subject to higher payments as market conditions change. Compare this to the U.S. where more than 90% of mortgages are fixed-rate loans.

Adjustable rate mortgages have their merits. The average life span of a mortgage is just five years, so for many homeowners, a 30-year rate is overkill. Adjustable rate mortgages are typically fixed for 3, 5, or 7 years, during which time the rate is very low. That time frame allows homeowners to pay very little interest while they decide to sell, refinance, pay off the mortgage, or simply let the rate adjust.

Some owners come out on top with an ARM. According to Freddie Mac, the average 5-year adjustable-rate mortgage (ARM) is just 2.99% compared to 4.15% for a 30-year fixed. A homeowner with a $200,000 ARM would save $11,000 in interest over the first five years. And, most ARM holders have watched their rates and payments drop after the initial fixed period since rates are so low.

But where an ARM can be cheaper, it’s also more risky. The homeowner takes on the risk of rising rates in exchange for a lower initial payment.

No one can tell the future, and that is why homeowners overwhelmingly opt for fixed rate mortgages. Plans to sell a home are often trumped by life events or market conditions. Homeowners with fixed rate mortgages can wait out inopportune circumstances.

Check 30-year fixed mortgage rates

A 30-year fixed-rate mortgage takes the risk and guesswork out of future finances. At today’s rates, homeowners are locking in fixed rates that are lower than adjustable-rate levels of just a few years ago.

Secure your future and take on a housing payment that is more secure than paying rent. Lock in a rate and payment, and enjoy predictable housing costs over the life of the loan.

Check your home buying eligibility. Start here (Sep 16th, 2024)

The post 30-Year Fixed Mortgage Rates or ARM Rates: Which are Better Long-term? first appeared on My Mortgage Insider.

That’s exactly what lenders do to determine a mortgage interest rate. They look at a variety of things to determine if they will trust you with their money and whether or not you are a good risk when it comes to paying the money back in a timely manner. But remember to shop around because you could get a better mortgage rate from someone else. That better rate could save you thousands of dollars each year or through the lifetime of the loan.

“Most of the credit decisions of approval are based on underwriting software,” says Ron Haddad, vice president of residential mortgage lending at Key Mortgage Services, Inc., Chicago. “It’s all based on risk assessment. The higher the risk you are, the higher the interest rate.”

Check your home buying eligibility. Start here (Sep 16th, 2024)

What is a “risky borrower”?

If you are a risky borrower in the eyes of a prospective lender, then you will most likely see much higher interest rates or have to put more in the down payment than what the advertised rates state.

For instance, you can get the best interest rate if you meet the criteria on the underwriting software – meaning you have a very high credit score of over 740, your credit history is pristine with no late payments and no collections, and you haven’t used to too much credit. Plus, you have to have the right income, a good down payment and the right type of home you are going to purchase. All those details matter in the world of mortgage rates.

But Haddad says that after more than a decade in the lending business, nothing surprises him anymore.  He has seen people with bankruptcies with 700 credit scores get good loans. And then he’s seen people who have never made a late payment with only a 640 credit score and not get a good interest rate.

“A loan officer has to work with the credit report to determine more than what the credit score says. We can help people and work with the information we get in the report,” he says.

What kinds of property are considered “risky”?

For instance, not only does your credit report count when it comes to what interest rate you get but it also matters what kind of home you are buying.

“Condominiums carry a higher risk for lenders than a single-family home with a backyard,” Haddad says. “A $300,000 condo with 20 percent down will have a higher rate of interest than a single home for $300,000 with 20 percent down. There’s just an additional level of risk for condos. You might have to put 25 percent down on a condo to get the same rate you would for a single home.”

Lenders have been going by a risk-based pricing practice for a while. That means they offer better deals to people who are much less risk of not paying back the loan, says VantageScore Solutions, LLC., the company behind VantageScore credit scoring model.

Credit scores & borrower risk

The website states that lenders feel more comfortable giving out large amounts of money to those with high credit scores. That just makes sense.

About 50 million individuals – which is 25 percent of all individuals with credit scores — have scores greater than 785, according to research by myFICO, a subsidiary of FICO (an analytics software company and owner of the FICO Score created by America’s three credit reporting companies of Equifax, Experian, and TransUnion.)

These high-credit achievers use on average only 7 percent of their available revolving credit, and on average four credit cards or loans with balances. Revolving credit can include credit cards such as MasterCard or a retail store card such as Target. These are the people that get the really good interest rates.

But sometimes things happen and you might get thrown into the high-risk category of credit scores without you even knowing it.

“It could be a $50 medical co-pay from five years ago that nobody reached out to you to pay, and it went into collections,” Haddad says. “It could be anything like that that could dump your credit score much lower.”

He says to just be aware of your credit report and check it every year to see that everything is correct.

And then sometimes, by just having a lender who is willing to go that extra mile to help you get a loan at a good rate, miracles can happen. For instance, Haddad just helped a guy secure a mortgage even though he had some dents in his financial background.

“He had nine jobs in the last two years and a bankruptcy four years ago. We were successful in getting him money from the Welcome Home Illinois down payment assistance program and an interest rate of 3.75 percent for an FHA loan. That was a below market interest rate,” Haddad says

The borrower had to write multiple letters to the lender explaining the situation he was in and why he was in it. It worked.

“Sometimes, you just have to dig a little deeper and work a little harder to get someone a loan at a good interest rate,” he says.

Check your home buying eligibility. Start here (Sep 16th, 2024)

The post Credit, Home Type & Perceived Risk Affect Your Mortgage Rate first appeared on My Mortgage Insider.

This post outlines several rate lock strategies along with their advantages and drawbacks.

Check your home buying eligibility. Start here (Sep 16th, 2024)

What Does It Mean To Lock A Mortgage Rate?

A mortgage lock involves a commitment by you and your lender. When you request a lock, your lender agrees to give you that rate, even if interest rates have increased. On the other hand, you are also making a commitment to close at that rate, even if interest rates have fallen.

What Does It Cost To Lock Your Rate?

The longer your rate lock, the higher the risk to the mortgage lender. So you’ll pay for the privilege. With most lenders, the standard lock period is 30 days. They quote rates assuming a 30-day lock.

By locking  7 to 15 days before closing you should get better pricing. For instance, one national lender’s rate sheet charges .15 percent more for a 30-day lock than it does a 15-day lock, and .25 percent more for a 45-day lock.

For a $300,000 home loan, it would cost an extra $750 to lock its rate for 45 days instead of 15.

The cost can get even higher if you choose to lock your rate for 60 days or more..

What About “Free” Rate Locks?

When lenders were experiencing very high volume, refinance processing suffered. Purchases get priority with most lenders, and refinance transactions can end up on the back burner.

This can result in “blown locks” for refis. To counter this and avoid angering customers, some lenders offered “free” locks of up to 90 days. However, they weren’t really free, because the rate for those loans was slightly higher than it was for purchases.

When you get mortgage quotes for a refinance or purchase, make sure you know what lock period you’re getting on your quote. That way you can make a valid comparison.

What’s The Best Time To Lock?

There are three schools of thought about locking. Some borrowers like to “set and forget” their rate, and they are averse to risking a higher rate in order to perhaps obtain a lower one.

Others are gamblers, checking rates every day in hopes of nailing down something better.

Finally, there are the ones who want it all. These borrowers buy a “float down” option, which allows them to lock in a rate, protecting them from potential rate increases. However, if interest rates fall while their loan is in process, they can get the lower rate.

Float Downs – Know What You’re Buying

There are rules for float downs. Some lenders only let you exercise the float down option the day they draw your closing documents. Others allow you to lock in a lower rate anytime during the process.

Still, others require the new rate to be at least a certain percent lower than your locked rate before they let you switch — .125 to .25 percent is typical.

Read your documents carefully, and understand what a float down will cost you since these agreements are not standardized.

You Blew Your Lock – What Now?

If you or your lender fails to complete your loan during the lock period, you lose the protection from rate increases but you don’t benefit if rates have fallen. You close at the higher of either the rate you originally locked, or the current interest rate for your mortgage.

However, if rates are rising, you might be better off extending your lock. This costs extra, but may end up being less expensive than the new, higher mortgage rate. For instance, one lender charges .02 percent per day to extend a lock. If new rates are .25 percent higher, it would cost about one percent to get the rate back to its original level. So if you miss your closing by five days, it’s absolutely worth paying .10 percent to save one percent.

How To Close Quickly And Save Money

One way to make sure that your loan closes on time is to have all your required documentation ready for your lender. Whenever you’re asked for something else, supply it immediately.

Even if your closing date is weeks away, get your stuff in now. That’s because your new documents may trigger questions from the underwriter, requests for new information, etc. You don’t want your loan derailed by an eleventh-hour request.

Check your home buying eligibility. Start here (Sep 16th, 2024)

The post When Should I Lock In My Mortgage? first appeared on My Mortgage Insider.