Despite predictions that mortgage interest rates were set to rise over the course of 2016, we have actually seen rates hold steady below 5%. Initially, there was a climb to 4% this spring, but over the summer rates dipped back down to slightly below 3.5%.
This is a great sign for families considering purchasing a home.
Be warned: rates aren’t set in stone here forever. Predictions for 2017 paint a different picture. If your family is homebuyer ready, it’s time to take advantage of the long-term benefits of homeownership.
Rates, Loans, and Programs
Loans aren’t cut and dry, one-size-fits-all types of products. Think of it more as a math equation with different variables. While industry trends may hover below 3.5%, you have to add in your unique variables to determine the final interest rate. A high credit score gives you a better chance at a low interest rate. If the ratio of the loan to value of your home is too high, that impacts the final interest rate as well.
This is why a loan provider will never be able to give you a specific answer on your interest rate until they run the numbers. All of the different variables matter.
Once the broker calculates the terms for the loan, you can explore different options within the loan. One that we are seeing right now is that buyers can buy a percentage of the interest rate, referred to as purchasing a point. For example, a family qualifying for a 4.25% interest rate on a $300,000 home has the option of purchasing a point. If they invest $3,000 upfront, they can shave the interest rate by .5%. In less than two years, they will have paid off the $3,000 in interest savings.
To add even more options, many first-time homebuyers also qualify for assistance programs. These programs add in variables to writing the loan. We are seeing individuals who use assistance programs qualify for 3.5% interest, but they must have a down payment of at least 5% of the home.
Because loans can be so complicated and have so many moving pieces, we highly recommend that buyers work with a homebuyer coach. This free coaching service is your advocate throughout the entire process.
New homebuyers aren’t the only ones benefitting from these low rates. Individuals who purchased their home at the peak of the market are refinancing, saving themselves thousands of dollars in interest payments over the lifetime of the loan.
Much like qualifying for a home loan, refinancing terms take into consideration various different factors to determine the final terms. A straight refinance for a homeowner with good credit and equity in the home will come in at a lower rate. We’re seeing 3.5% common for those scenarios.
When the loan amount to the value of the home doesn’t quite hit the desired percentage, the rate increases a little. Additionally, families asking for cash out will pay a price in interest rate. These rates range closer to 4.5%.
Thinking of refinancing? Learn when the best time to refinance your mortgage is.
Shop Around for a Loan Provider
Just as it’s important to interview three different realtors, it’s important to consult with three different lenders before committing to a loan. You want to partner with a mortgage broker who will work with you to place you in the best product for you and your family. Not all loan products are created equal. Additionally, some loans work better for individuals in different circumstances.
Your provider should be a trusted advisor who can steer you in the direction of the best loan for you, not the best one for the bank.
It’s hard to blame the public for being distrusting of the banking industry. When the country is finally healing from the crash of ’08, caused in part by bad banking practices, the Wells Fargo scandal emerges.
Bottom line: you need to be in the driver’s seat of your purchase and understand all of the terms you are signing up for. While most lending institutions have cleaned up their act, there are still lenders preying on homebuyers.
Be suspicious if closing costs exceed 3% or additional fees seem exorbitant. Any origination fees require a second look, as well as an annual percentage rate different than what you originally agreed to.
If you’re looking for more ways to protect yourself throughout the entire homebuying process, join us for our Homebuyer Class.
Rates Predicted to Climb at the Start of 2017
While predictions are never guaranteed, there are a lot of different signs pointing to rising interest rates with the New Year. In the aftermath of the election, we are anticipating some movement as the new administration takes over.
Just as we couldn’t predict who was going to win the presidency, we can’t say for sure what will happen with rates. What we can say with certainty is that rates hit a historic low in 2012. While they fluctuated through early 2015, they have primarily been climbing ever since.
Partner with a Social Enterprise for Your Mortgage
Taking the mortgage industry by storm, at NeighborWorks Orange County we are giving homebuyers a mortgage loan option that protects them against predatory lending, ensures they have the loan best suited for their family, and offers competitive rates. In addition to writing your loan, our brokers are able to help you explore different assistance programs you qualify for, as well as work with Community Reinvestment Act Products.
As if that isn’t enough, our social enterprise model reinvests earnings back into the community. Since our brokers are paid on a salary, we use the commission to help fuel sustainable housing initiatives in Orange County. It’s a model that creates a positive cycle of change in every aspect of buying and owning a home.
Connect with our loan department today to explore the best mortgage options for your family.