What Goes Up...Must Come Down
If you watch the news or are current in the mortgage world (as we all should be), you know that the mortgage rates are dropping significantly. Mortgage rates are important because they regulate the amount of interest that home buyers pay on their mortgages every month. Houses, especially nice ones, aren’t exactly cheap. So borrowers need to obtain a loan from a bank in order to pay for their house. Well upon paying back that loan, borrowers must also pay interest, so if the interest rates are low, then of course the payments (in most circumstances) are low as well. What does that mean for you? It means that NOW is the time to look into buying a new home, or refinancing your current home for a lower interest rate.
According to Freddie Mac, the average mortgage rate as of October 16, 2014 is at 3.97% for a 30 Year Fixed Rate Mortgage. That’s a major change from the 4.28 percentage rate that was reported last year by Freddie Mac. One of the safest bonds to invest in are US Treasury Bonds. Because of this, US Banks model their interest rates on mortgages based on the US Treasury’s rates. As a result, if the Treasury’s rates drop, then the mortgage rates are likely to follow.
Is There an Explanation for Low Mortgage Rates?
Wise investors want to make safe investments that will provide a steady income of money. One investment that is considered “safe” is an investment in Mortgage-Backed Securities (or MBS). Those who invest in mortgage-backed securities are essentially lending their money to a homebuyer or a business. These MBSs are backed by government supported entities like Freddie Mac and Fannie Mae, and since they are supported by the full faith and credit of the government, investors feel comfortable with investing. Investors are investing while the mortgage rates are low. If they go up too high, there is no guarantee that they will continue to put money towards MBSs. Banks need people to continue to invest in MBSs so that they can continue to gather their loans and sell them to the GSEs, or Government-Sponsored Enterprise . If no one is investing then the banks can’t sell their loans, and if smaller banks can’t sell their loans and their borrowers default then the bank loses thousands of dollars. According to Jed Kolko, a Trulia Chief Economist, “[When] investors think US mortgage-backed securities are relatively safe, mortgage rates [will] stay low.”
Granted, what I have provided is only one explanation. Other bloggers, mortgage experts, and financial institutions I’m sure have their opinions on why the rates have fallen. Will the rates stay low? Doubt it. The economy is constantly changing as well as the demand to borrow money. So be sure to take advantage of this rare financial opportunity while it’s beneficial to you. Just a bit of food for your mortgage thoughts.
The Basics Of Buying A Home
Anyone who may be looking to purchase a new home or refinance their current home should have a thorough education on certain aspects of the mortgage industry. No one wants to make an uninformed decision, especially when it comes to making such an important financial investment.
First thing’s first, let’s talk about the money. Remember back when you were a kid and you wanted that special brand of sugared cereal, the newest toy or game? If your mom was a savvy shopper she’d say “Wait until it goes on sale”. Because we’ve all heard of this phrase on so many occasions, we have all learned to live by it. We are attracted to the words sale, rebate and bargain. We’re also attracted by discounted prices. We love the idea of obtaining something that is valued at a higher price, but not having to give up an arm and a leg to get it.
So when you’re in the market for buying a home, as a buyer, you want to make the best financial decision possible. That would be buying a great house but not necessarily having to spend your life savings on it.
When you’re looking to purchase a home, you have to first seek out a loan (in most cases from a mortgage broker or bank). Once approved, the broker or bank will give you the loan amount to purchase the house. You then pay money back to the bank until your house is paid off.
The best time to purchase a home is when interest rates on mortgages are low. This is because, you are paying less money back on what you initially borrowed in order to purchase the home.
What do interest rates have to do with purchasing a home?
Interest rates affect your monthly payment, by determining how high or how low these payments will be. For example: The house you have your eyes on is $220,000.
- You make a down payment of $20,000 (10%).
- The remaining principal (the amount of the loan you will need for the house) is $200,000
- Remember, upon paying back the loan, you must pay on the principal amount of the loan, as well as the interest on the loan every month
- If your interest rate is 5.5%, you’d be paying about $1000 in interest every month, plus your house note and all of the other fees that come with owning a home
- If your interest rate is at 4%, you’d be looking at paying a bit over $700 a month in interest
As you can see, a small increase or decrease in your interest rate can have a serious impact on your monthly payments. The lower the interest rate, the more affordable your monthly payments have the potential to be.
When is the right time to finance a home?
The time to finance a home for the best rate could be now, as mortgage rates across the country have reached a low over the last 16 months at 4.12 percent, according to Freddie Mac.
This number is quoted for a 30-year fixed rate conventional mortgage, and since Jan. 1, people have been finding themselves able to afford about 8 percent more of a home in terms of quality. Las Vegas, in particular, may be experiencing their home rates flattening out as the median home price reached $200,000 in August, which is an almost 10 percent increase from the same time last year, according to a recent report from the Greater Las Vegas Association of Realtors (GLVAR). This is good news for home owners and buyers as the economy continues to recover from the recession that severely impacted the value of property nationwide.
Although property values increase as pricing begins to level, low mortgage rates are not necessarily available to everyone. Those who will see the lowest rates would be considered prime lenders, defined by Freddie Mac as a lender with a credit score over 740 and who can offer a 20 percent down payment. This, however, should not discourage those from financing a home.
If you’re interested in mortgage rates in the greater Las Vegas area, please contact Valley West Mortgage at 702-696-9900 or info@valleywestmortgage.com
