What’s Ahead For Mortgage Rates This Week – September 5, 2023

September 5, 2023 by

What's Ahead For Mortgage Rates This Week - September 5, 2023

Last week’s economic reporting included readings on inflation, consumer sentiment, and weekly readings on mortgage rates and jobless claims. 

 

Inflation Rates Are Similar in August

Month-to-month, the inflation rate holds relatively steady at 3.18 percent. This is slightly up when compared to 2.97 percent last month; however, it is significantly lower than the rate of 8.52 percent last year. When compared to the long-term average, inflation is trending in the right direction, as the long-term average is 3.2 percent.

Inflation rose at a pace of 0.20 percent in July and met analysts’ expectations. There was no change in the pace of month-to-month inflation from June’s reading of 0.20 percent growth. The Consumer Price Index also reported that year-over-year inflation reached 9.10 percent, which was the highest reading since reaching a 40-year high in mid-2022.

 

While we still wait for core inflation, experts predict it to come in at around 3.38 percent. Core inflation, also known as the CPI, excludes food and fuel prices, which are historically volatile. If core inflation comes in at 3.38 percent, this would be significantly lower than the July reading of 4.7 percent.

 

Right now, it is unclear whether the Federal Reserve will raise interest rates, as they are still waiting for other metrics, including the core inflation above.

 

Mortgage Rates Rise, Job Market Cools

The 30-year fixed, the preferred metric for mortgage rates, remains at around 7.53 percent. These are the highest mortgage rates of the last 20 years. Rates continue to rise when compared to July’s mortgage rates, which were just under 7 percent. This continues to put pressure on those interested in purchasing homes. The 15-year fixed mortgage rate is about 6.81 percent. This is slightly higher than the 15-year fixed for August, which was 6.55 percent on average.

 

When comparing these mortgage rates to last week, the 30-year fixed has gone up. It was 7.23 percent, on average, last week, and has jumped to 7.53 percent this week. The average rate for a 15-year fixed is 6.81 percent this week, which is slightly higher than last week, where the average 15-year fixed was 6.55 percent.

 

It appears that the increase in interest rates is finally having an impact on the job market. Unemployment rose to 3.8 percent, and the economy added 187,000 jobs in August. While these are still historically solid numbers, it is clear that the job market is cooling, when compared to July.


University of Michigan Consumer Sentiment Survey 

The University of Michigan released its monthly consumer sentiment report, and consumer sentiment has dropped slightly when compared to last month. The index reading was 72.0 in July, but it dropped to 69.5 in August. The overall sentiment regarding the economy also dropped from 76.6 in July to 75.7 in August. 

 

These numbers reflect that consumers are still a bit wary of economic conditions. While inflation continues to come down, many consumers are likely still nervous about the increase in interest rates and the cooling job market. While sentiment remains positive, there is some cooling in the economy.

 

What’s Ahead

During the next week, mortgage rates will get an update, and the Federal Reserve will receive some new metrics regarding the economy. These numbers will be very important for the Fed, as it decides whether it will raise interest rates again in September in an attempt to cool inflation further.

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Understanding the Mechanics of a HELOC Loan

September 1, 2023 by

For many homeowners, a Home Equity Line of Credit (HELOC) can be an attractive financial tool, offering a flexible way to access funds while leveraging their property’s equity. A HELOC works differently from a traditional home loan or mortgage, providing borrowers with a revolving credit line that they can draw from as needed.

What is a HELOC?

A Home Equity Line of Credit is a type of loan that allows homeowners to borrow against the equity they have built in their property. Equity is the difference between the home’s current market value and the outstanding mortgage balance. HELOCs are typically offered by banks, credit unions, and other financial institutions and are often regarded as a “second mortgage.”

How does a HELOC work?

A HELOC operates like a credit card or a checking account with a pre-approved limit. When you apply for a HELOC, the lender assesses your creditworthiness and the amount of equity you have in your home to determine your credit limit. This limit is typically a percentage of the home’s appraised value, minus any existing mortgage.

Once approved, borrowers can access the funds as needed during the “draw period,” which typically lasts around 5 to 10 years. During this time, you can borrow and repay the funds multiple times, just like using a credit card. You only pay interest on the amount you have withdrawn.

Interest Rates and Repayment

HELOCs usually have variable interest rates, which means that the rate can fluctuate with changes in the market index. The interest rates are generally lower than those of credit cards and other unsecured loans, making a HELOC an appealing option for consolidating higher-interest debts or funding significant expenses, such as home renovations or educational costs.

During the draw period, borrowers are usually required to make interest-only payments each month. However, some lenders may allow borrowers to make both principal and interest payments. During this phase, borrowers can no longer withdraw funds and must repay both principal and interest, often leading to higher monthly payments.

Advantages of a HELOC

Flexibility: Borrowers have the freedom to use the funds for various purposes, from home improvements and debt consolidation to emergency expenses and educational costs.

Lower interest rates: Compared to other forms of credit, HELOCs often offer more favorable interest rates, making it a cost-effective financing option for eligible homeowners.

Tax benefits: In some cases, the interest paid on a HELOC may be tax-deductible, but it’s essential to consult a tax advisor to understand the specifics of your situation.

A Home Equity Line of Credit can be an excellent way for homeowners to access funds for various financial needs. By understanding how a HELOC works, its benefits, and potential risks, borrowers can make informed decisions about whether it suits their financial goals and circumstances.

Responsible use, careful planning, and regular review of your financial situation are essential to make the most of this powerful financial tool and avoid potential pitfalls. As always, it’s advisable to seek professional financial advice before making any major financial decisions.

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Buying Vs. Building a House

August 31, 2023 by

Buying Vs. Building a HouseDeciding whether to buy or build a house can be a complex decision that depends on several factors. Here are some pros and cons to consider:

Pros of Buying a House:

Convenience: Buying a house is generally quicker and more convenient than building one. You can move in as soon as you close the deal, without having to wait for construction to be completed.

Location: When you buy a house, you have the opportunity to choose a home in an established neighborhood with existing amenities such as schools, parks, shopping centers, and other essential services. You can choose a location that is convenient for your lifestyle.

Cost: Depending on the location, buying a house may be less expensive than building a new one. You can often find great deals on homes that have been on the market for a while, or in areas where the real estate market is more favorable to buyers.

No Hassle of Design and Construction: When you buy a house, you don’t have to worry about designing the home or supervising construction. You can focus on personalizing the house according to your taste, rather than starting from scratch.

Resale Value: Buying an established home often means it already has a resale value, making it easier to sell in the future.

Cons of Buying a House:

Limited Customization: When you buy an existing house, you may have limited options for customization. You’ll need to accept the home’s layout, features, and design unless you’re willing to invest additional time and money to make renovations.

Unpredictable Market: Real estate markets can be unpredictable, and the value of your home may fluctuate depending on economic conditions. There’s always a risk that the value of your home may decrease in the future.

Maintenance: As a homeowner, you’ll be responsible for maintaining and repairing the home, which can be costly. Older homes may require more maintenance than newer ones, which can add up over time.

Hidden Problems: Even with a thorough home inspection, there may be hidden problems with the house that you only discover after moving in, such as foundation issues, electrical problems, or water damage.

Pros of Building a House

Customization: You can design the house to your exact specifications, ensuring that it meets your unique needs and preferences.

New materials and technology: You can take advantage of the latest building materials and technology, which can make the house more energy-efficient and environmentally friendly.

No hidden problems: Since the house is new, there should be fewer hidden issues or problems to deal with.

Cons of Building a House

Cost: Building a house can be more expensive than buying an existing one, especially if you choose high-end materials or features.

Time-consuming: Building a house can take months or even years to complete, which means you’ll need to be patient and flexible.

Uncertainty: There may be unexpected delays or complications during the construction process, which can be frustrating.

Buying a house can be a smart and practical option for many people, especially those who prioritize convenience, location, and cost savings, buying a house is a big decision that requires careful consideration of both the advantages and disadvantages. It’s important to do your research and weigh your options before deciding.

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How to Save The Most Money When Buying a House

August 30, 2023 by

How to Save The Most Money When Buying a HouseBuying a house is one of the most significant financial decisions in one’s life, and it’s essential to make smart choices to save money during the process. While purchasing a home can be expensive, there are several strategies you can implement to maximize your savings and make the most of your investment.

Here are some valuable tips on how to save as much money as possible when buying a house:

Research and Compare Mortgage Options:

When considering a mortgage, do thorough research to find the best interest rates and terms available. Compare offers from multiple lenders and don’t be afraid to negotiate. Even a small reduction in interest rates can lead to significant savings over the life of the loan.

Save for a Higher Down Payment:

Saving for a higher down payment can reduce the overall cost of your mortgage and decrease the amount of interest paid in the long run. Aim to save at least 20% of the property’s value to avoid private mortgage insurance (PMI) costs, which can add thousands of dollars to your expenses.

Shop Around for a Home:

Don’t rush into buying the first house you see. Take your time and explore different neighborhoods and properties. Being patient and persistent may lead to finding a better deal or a motivated seller willing to negotiate a lower price.

Consider Fixer-Uppers:

Homes in need of renovation often come with a lower price tag. If you’re willing to invest some time and effort, buying a fixer-upper can save you money upfront and provide an opportunity to increase the home’s value over time.

Work with a Skilled Realtor:

Enlisting the help of a skilled real estate agent can save you both time and money. Realtors have extensive knowledge of the local market and can negotiate on your behalf, potentially leading to a better deal.

Get a Home Inspection:

Never skip a home inspection. Hiring a professional to assess the property’s condition can identify potential issues and prevent costly surprises down the road. It gives you the leverage to negotiate repairs or a lower price if problems are found.

Shop for Homeowner’s Insurance:

When purchasing a house, you’ll need homeowner’s insurance. Shop around and compare rates from different insurers to secure the best coverage at the most affordable price.

Be Mindful of Closing Costs:

Closing costs can add up quickly, so be sure to ask for a detailed breakdown of all fees involved. Some lenders might be willing to negotiate or offer incentives to reduce these expenses.

Consider Energy-Efficient Homes:

Opt for an energy-efficient home or make energy-saving upgrades if possible. Lower utility bills will save you money in the long run and contribute to a more environmentally friendly lifestyle.

Evaluate Tax Benefits:

Educate yourself on potential tax benefits related to homeownership, such as mortgage interest deductions and property tax deductions. Consult with a tax professional to understand how these benefits apply to your specific situation.

In conclusion, buying a house is a significant investment, and careful planning and research can save you a substantial amount of money. From finding the best mortgage terms and negotiating the purchase price to exploring fixer-uppers and taking advantage of tax benefits, there are numerous opportunities to maximize your savings. With the right approach, you can make the dream of homeownership more affordable and financially rewarding in the long term.

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What To Know About Property Lines

August 29, 2023 by

What To Know About Property LinesIf you are in the process of buying a new home, you know that there are a lot of moving parts involved. You need to know everything you can about a potential house before you decide to purchase it, and that includes the property lines. What do you need to know about property lines, and why are they so important?

How Are Property Lines Drawn?

While property lines are the borders that separate one property from another, they are also legal boundaries. Essentially, property lines determine what you do and do not own. There is a chance that someone may place a fence directly on top of the property line, but there is no guarantee that the fence is in the right place. Usually, property lines are determined and drawn by a surveyor who takes a look at the land, refers to any deeds or records related to the properties involved, and lets you know exactly where the boundaries are located. 

How Can You Find Your Property Lines?

When you are looking at a potential property, finding your property lines should be close to the top of your list. You are purchasing not only the building but the land around it, and you need to know where your land will end. This could determine potential projects you have in mind for the property. If you are building a house, there might be stakes in the ground clearly showing your property lines. If you are purchasing an existing property, you may have to pull legal records to figure out where the boundaries are located.

How Property Lines Play A Role After The Purchase

There are several situations where property lines could play a role after you purchase the property. For example, if you need to trim a tree, or if a tree falls on the property line, you may need to know who is responsible for getting rid of it. Furthermore, if there is a home improvement project coming up, you need to know the limits of that construction project. 

Know Your Property Lines

You need to know the boundaries of any property you are thinking of purchasing. An experienced real estate professional will understand how to look up documentation and let you know exactly where the property lines are before you move forward with the purchase. 

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Buying for Retirement: 3 Reasons Why You’ll Want to Buy Your Retirement Home Before You Retire

August 28, 2023 by

Buying for Retirement: 3 Reasons Why You'll Want to Buy Your Retirement Home Before You RetireMany people dream of buying their ideal retirement home after their career has come to a conclusion – with all that extra free time it seems like it’d be the most logical time to shop around.

However, many real estate professionals strongly recommend that their clients find a retirement property before they’re off the payroll. While it may seem like a big time commitment to find a new home while you’re still busy with your work there are several significant financial benefits to purchasing your retirement home before you actually do retire. Here are our top reasons why.

It Makes Your Mortgage Easy

When you are employed it is easier to get approved for a mortgage. If you wait until after you retire to buy your retirement home, you may not have the income require to qualify for the mortgage that you need. Don’t limit yourself! Buy while you’re still employed to keep your options open.

It Leaves You With More Spending Money

Buying a new home while you have an income provides you with more security with your expenses, such as mortgage payments and planned upgrades or renovations. Having an income can also mitigate financial stress should you run into any unexpected expenses after closing.

It Leaves You Ready For Reality

You may think you can accurately predict the expenses of your new home, but if you buy the property before retiring it gives you time to get to know the true amounts of your monthly payments. This can help ensure that you have enough saved to retire and live comfortably in your new property, with no surprises for your budget. You’ll be in a better position to create a financial plan once you know the reality of owning your new home.

An Added Bonus: It Can Be An Income Property

If you decide to purchase your retirement home before you retire you don’t have to move into it right away. You can rent it out as an income property until you’re ready to settle in, which will not only help cover mortgage payments but will also allow you to see first-hand what the monthly expenses are for the property.

This will also prevent you from having to deal with a move while working; you can wait until you do finally retire before packing up your current home and moving into your new one.

Contact your trusted mortgage professional today for more advice to set yourself up for the future.

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What Is A Floating Interest Rate?

August 25, 2023 by

What Is A Floating Interest Rate?A floating interest rate, also known as a variable interest rate or an adjustable rate, is an interest rate that can change over time. Unlike a fixed interest rate, which remains constant for the entire duration of a loan or investment, a floating interest rate fluctuates periodically based on certain factors or benchmarks.

The advantage of a floating interest rate is that it can offer flexibility. When interest rates are low, borrowers can benefit from reduced interest payments. However, if interest rates rise, the cost of borrowing will also increase.

How Does A Floating Rate Work?

A floating interest rate works by adjusting periodically based on a predetermined formula or benchmark. Here’s a general overview of how a floating rate typically operates:

Selection of a Benchmark: When entering into a loan or investment agreement with a floating rate, a benchmark or reference rate is chosen. Common benchmarks include the prime rate, LIBOR, or a government bond yield. The benchmark serves as a starting point for calculating the interest rate.

Margin or Spread: In addition to the benchmark, a margin or spread is set. The margin remains constant throughout the loan or investment term and is added to the benchmark to determine the final interest rate. For example, if the chosen benchmark is 3% and the margin is 2%, the floating interest rate would be 5%.

Periodic Rate Adjustments: The frequency of rate adjustments is specified in the loan or investment agreement. The interest rate may be adjusted annually, quarterly, monthly, or even daily, depending on the terms. At each adjustment period, the interest rate is recalculated based on the current value of the benchmark.

The Pros And Cons Of Using A Floating Rate Mortgage Loan

Using a floating rate mortgage loan, also known as an adjustable-rate mortgage (ARM), has both advantages and disadvantages. Here are some of the pros and cons to consider:

Pros:

Initial Lower Interest Rate: One of the main advantages of a floating rate mortgage is that it often starts with a lower interest rate compared to a fixed-rate mortgage.

Potential for Future Savings: If interest rates decrease over time, borrowers with a floating rate mortgage can benefit from lower monthly payments.

Flexibility: Floating rate mortgages often provide more flexibility than fixed-rate mortgages. Depending on the terms of the loan, borrowers may have the option to refinance or sell the property without incurring significant prepayment penalties.

Cons:

Uncertainty and Rate Fluctuations: The main disadvantage of a floating rate mortgage is the uncertainty associated with rate fluctuations. The interest rate is subject to periodic adjustments based on market conditions, which means the monthly payment can change over time.

Potential for Higher Costs: If interest rates increase significantly during the loan term, borrowers may end up paying more in interest over the long run compared to a fixed-rate mortgage.

Limited Predictability: Unlike a fixed-rate mortgage, where the monthly payment remains constant throughout the loan term, a floating rate mortgage introduces uncertainty.

Refinancing Risk: If interest rates rise substantially, it may become more challenging to refinance the mortgage or obtain a new loan with favorable terms.

It’s essential for borrowers to carefully evaluate their financial situation, risk tolerance, and future plans before opting for a floating rate mortgage. Assessing the potential impact of rate fluctuations and considering long-term financial goals can help borrowers make an informed decision.

Consulting with a financial advisor or mortgage professional is recommended to fully understand the implications of a floating rate mortgage and determine if it aligns with your needs.

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What Are The Pros And Cons Of ‘No-Deposit’ Mortgage Deals For First-Time Buyers?

August 24, 2023 by

What Are The Pros And Cons Of 'No-Deposit' Mortgage Deals For First-Time Buyers?“No-deposit” mortgage deals for first-time buyers refer to mortgage options that allow buyers to purchase a home without having to put down a deposit or a down payment. Here are the pros and cons of such deals:

Pros:

Lower upfront costs: The most significant advantage of a no-deposit mortgage is that it eliminates the need for a substantial upfront deposit. This can be beneficial for first-time buyers who may struggle to save a large sum of money for a deposit. It allows them to enter the property market sooner.

Increased affordability: With a no-deposit mortgage, first-time buyers can purchase a home with a smaller amount of savings. This can make homeownership more accessible, especially in areas where property prices are high.

Potential investment opportunities: By utilizing a no-deposit mortgage, first-time buyers can allocate their savings toward other investments or use the funds for home improvements. This flexibility may provide opportunities for additional financial growth.

Cons:

Higher borrowing costs: No-deposit mortgages typically involve higher borrowing costs, including interest rates and fees. Lenders often consider these deals riskier, so they may offset the risk by charging higher interest rates or requiring additional insurance or guarantees.

Limited mortgage options: No-deposit mortgage deals are not as widely available as traditional mortgages. Lenders may have specific eligibility criteria or restrict the types of properties that qualify for these deals. The limited options can make it more challenging for first-time buyers to find a suitable mortgage arrangement.

Negative equity risk: By not providing a deposit, buyers immediately start with little or no equity in their property. If property prices decrease, there is a higher risk of falling into negative equity. Negative equity occurs when the outstanding mortgage balance exceeds the value of the property. This can be problematic if the buyer wants to sell or remortgage the property in the future.

Stricter eligibility criteria: Lenders offering no-deposit mortgages may impose stricter eligibility criteria. They may require a higher credit score, proof of stable income, or additional financial commitments. First-time buyers with a limited credit history or irregular income may find it more difficult to qualify for these deals.

Long-term financial implications: Opting for a no-deposit mortgage means taking on a higher level of debt. Buyers must carefully consider their long-term financial situation and ensure they can comfortably afford the mortgage repayments. Failing to do so could result in financial strain or difficulties in meeting future financial goals.

It is essential for first-time buyers to thoroughly research and assess their individual circumstances before committing to a no-deposit mortgage. Consulting with a mortgage advisor or financial professional can provide further guidance and help make an informed decision.

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3 Ways To Avoid Mortgage Insurance

August 23, 2023 by

3 Ways to Avoid Mortgage InsuranceWhen you are buying a home, you may run into a number of hurdles to complete the purchase. One of the items that you may be asked to purchase is called private mortgage insurance, often shortened to PMI. This is a unique insurance policy that your lender, such as the credit union or bank, may ask you to buy in order to protect themselves. In this insurance policy, the bank protects themselves against losing money if you end up defaulting on your loan.

Unfortunately, if you are asked to purchase PMI, this will increase your monthly mortgage payment. Therefore, most people try to avoid it. Fortunately, there are a few ways to do this.

Increase the Size of Your Down Payment

Typically, the lender will ask you to purchase PMI if your loan to value ratio is off. In most cases, the lender will ask you to buy PMI if you put down less than 20 percent. It is important to remember that this is still handled on an individual case-by-case basis and each lender handles this differently. 

Invest in a Piggyback Mortgage

Another option to avoid PMI is to invest in something called a piggyback mortgage. In this case, you are splitting your mortgage into two policies. For example, if you put down 10 percent, you would need to take out a mortgage for the other 90 percent.

When you take out a piggyback mortgage, you split this 90 percent loan into one mortgage for 80 percent and the other for 10 percent. The drawback of this policy is that the second loan might have a higher interest rate than the first. This can help you avoid having to take out PMI.

Try Building the PMI Into the Loan

Finally, the last option is to roll them into the cost of the loan. In this case, the lender avoids asking you to purchase PMI and instead charges you a little bit more money for the loan. You won’t have a section on your bill for “private mortgage insurance” but you will have a slightly higher monthly payment anyways. Remember that you can refinance to a lower rate later, saving some money; however, it might be harder to eliminate PMI.

Avoiding Mortgage Insurance

These are a few ways that you can avoid purchasing PMI. This will help you keep your monthly payments low. As always, speak with your trusted mortgage professional for personal advice on your specific situation.

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What Do Appraisers Consider When Valuing a House?

August 21, 2023 by

What do Appraisers Consider When Valuing a House?Appraisers consider several factors when valuing a house to determine its fair market value. The goal of the appraisal is to provide an unbiased and accurate assessment of the property’s worth.

Here are the key factors appraisers consider:

Location: The location of the property is one of the most critical factors in determining its value. Proximity to amenities such as schools, shopping centers, parks, public transportation, and the overall desirability of the neighborhood can significantly influence the value.

Size and layout: The square footage and layout of the house play a crucial role in its valuation. Larger houses generally have higher values, but the layout and functionality of the space also matter.

Condition: The overall condition of the property, including both the interior and exterior, is essential. Appraisers look for signs of wear and tear, structural issues, and the general maintenance level of the house.

Upgrades and renovations: Recent upgrades and renovations can positively impact the value of a house. Appraisers take into consideration improvements such as kitchen upgrades, bathroom remodels, flooring changes, or any other updates that enhance the property’s appeal and functionality.

Comparable sales (comps): Appraisers use comparable sales data from recently sold properties in the same or similar neighborhoods to establish a benchmark for the subject property’s value. They compare factors like size, age, condition, and location to determine the market value.

Market trends: Appraisers consider the current real estate market conditions. If it’s a seller’s market with high demand and limited supply, the property’s value may be higher, and vice versa.

Age and condition of the property: The age of the house and its overall condition, including the age and condition of the roof, HVAC systems, and major appliances, will be assessed. Newer and well-maintained properties tend to have higher values.

Lot size and landscaping: The size and quality of the lot, as well as the landscaping and curb appeal, can influence the property’s value.

Views and natural features: Properties with attractive views or access to natural features like waterfronts, mountains, or green spaces may have higher values.

Environmental factors: Appraisers also consider any environmental issues or hazards that might affect the property’s value, such as proximity to industrial sites, flood zones, or other potential risks.

It’s important to note that the appraisal process may vary slightly depending on the specific regulations and guidelines in a particular region or country. Appraisers must remain objective and follow professional standards to provide an accurate and impartial valuation of the property.

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