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Mortgage interest rates are a mystery to many of us—whether you're a home buyer in need of a home loan for your first house or your fifth.

After all, what does “interest rate” even mean? Why do rates swing up and down? And, most important, how do you nab the best interest rate—the one that’s going to save you the most money over the life of your mortgage?

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Here, we outline what you need to know about interest rates before applying for a mortgage.

Why does my interest rate matter?

Mortgage lenders don't just loan you money because they’re good guys—they’re there to make a profit. “Interest” is the extra fee you pay your lender for loaning you the cash you need to buy a home.

Your interest payment is calculated as a percentage of your total loan amount. For example, let’s say you get a 30-year, $200,000 loan with a 4% interest rate. Over 30 years, you would end up paying back not only that $200,000, but an extra $143,739 in interest. Month to month, your mortgage payments would amount to about $955. However, your mortgage payments will end up higher or lower depending on the interest rate you get.

Why do interest rates fluctuate?

Mortgage rates can change daily depending on how the U.S. economy is performing, says Jack Guttentag, author of “The Mortgage Encyclopedia.”

Consumer confidence, reports on employment, fluctuations in home sales (i.e., the law of supply and demand), and other economic factors all influence interest rates.

“During a period of slack economic activity, [the Federal Reserve] will provide more funding and interest rates will go down,” Guttentag explains. Conversely, “when the economy heats up and there’s a fear of inflation, [the Fed] will restrict funding and interest rates will go up.”

How do I lock in my interest rate?

A “rate lock” is a commitment by a lender to give you a home loan at a specific interest rate, provided you close on your home in a certain period of time—typically 30 days from when you're pre-approved for your loan.

A rate lock offers protection against fluctuating interest rates—useful considering that even a quarter of a percentage point can take a huge bite out of your housing budget over time. A rate lock offers borrowers peace of mind: No matter how wildly interest rates fluctuate, once you're "locked in" you know what monthly mortgage payments you'll need to make on your home, enabling you to plan your long-term finances.

Naturally, many home buyers obsess over the best time to lock in a mortgage rate, worried that they'll pull the trigger right before rates sink even lower.

Unfortunately, no lender has a crystal ball that shows where mortgage rates are going. It’s impossible to predict exactly where the economy will move in the future. So, don't get too caught up with minor ups and downs. A bigger question to consider when locking in your interest rate is where you are in the process of finding a home.

Most mortgage experts suggest locking in a rate once you're "under contract" on a home—meaning you've made an offer that's been accepted. Most lenders will offer a 30-day rate lock at no charge to you—and many will extend rate locks to 45 days as a courtesy to keep your business.

Some lenders offer rate locks with a “float-down option,” which allows you to get a lower interest rate if rates go down. However, the terms, conditions, and costs of this option vary from lender to lender.

How do I get the best interest rate?

Mortgage rates vary depending on a borrower’s personal finances. Specifically, these six key factors will affect the rate you qualify for:

  1. Credit score: When you apply for a mortgage to buy a home, lenders want some reassurance you’ll repay them later! One way they assess this is by scrutinizing your credit score—the numerical representation of your track record of paying off your debts, from credit cards to college loans. Lenders use your credit score to predict how reliable you’ll be in paying your home loan, says Bill Hardekopf, a credit expert at LowCards.com. A perfect credit score is 850, a good score is from 700 to 759, and a fair score is from 650 to 699. Generally, borrowers with higher credit scores receive lower interest rates than borrowers with lower credit scores.
     
  2. Loan amount and down payment: If you're willing and able to make a large down payment on a home, lenders assume less risk and will offer you a better rate. If you don’t have enough money to put down 20% on your mortgage, you’ll probably have to pay private mortgage insurance, or PMI, an extra monthly fee meant to mitigate the risk to the lender that you might default on your loan. PMI ranges from about 0.3% to 1.15% of your home loan.
     
  3. Home location: The strength of your local housing market can drive interest rates up, or down.
     
  4. Loan type: Your rate will depend on what type of loan you choose. The most common type is a conventional mortgage, aimed at borrowers who have well-established credit, solid assets, and steady income. If your finances aren't in great shape, you may be able to qualify for a Federal Housing Administration loan, a government-backed loan that requires a low down payment of 3.5%. There are also U.S. Department of Veterans Affairs loans, available to active or retired military personnel, and U.S. Department of Agriculture Rural Development loans, available to Americans with low to moderate incomes who want to buy a home in a rural area.
     
  5. Loan term: Typically, shorter-term loans have lower interest rates—and lower overall costs—but they also have larger monthly payments.
     
  6. Type of interest rate: Rates depend on whether you get a fixed-rate mortgage or an adjustable-rate mortgage, or ARM. "Fixed-rate" means the interest rate you pay remains fixed at the same level throughout the life of your loan. An ARM is a loan that starts out at a fixed, predetermined interest rate, but the rate adjusts after a specified initial period (usually three, five, seven, or 10 years) based on market indexes.

Tap into the right resources

Whether you're looking to buy a home or a homeowner looking to refinance, there are many mortgage tools online to help, including the following:

  • mortgage rate trends tracker lets you follow interest rate changes in your local market.
  • mortgage payment calculator shows an estimate of your mortgage payment based on current mortgage rates and local real estate taxes.
  • Realtor.com's mortgage center, which will help you find a lender who can offer competitive interests rates and help you get pre-approved for a mortgage.

Contact The McLeod Group Network for all your Real Estate needs! 971.208.5093 or [email protected] 

By: Realtor.com, Daniel Bortz

Where Are Interest Rates Headed in 2019?

by Amy McLeod Group


The interest rate you pay on your home mortgage has a direct impact on your monthly payment. The higher the rate, the greater the payment will be. That is why it is important to know where rates are headed when deciding to start your home search.

Below is a chart created using Freddie Mac’s U.S. Economic & Housing Marketing Outlook. As you can see, interest rates are projected to increase steadily throughout 2019.

How Will This Impact Your Mortgage Payment?

Depending on the amount of the loan that you secure, a half of a percent (.5%) increase in interest rate can increase your monthly mortgage payment significantly. But don’t let the prediction that rates will increase stop you from purchasing your dream home this year!

Let’s take a look at a historical view of interest rates over the last 45 years.

Bottom Line

Be thankful that you can still get a better interest rate than your older brother or sister did ten years ago, a lower rate than your parents did twenty years ago, and a better rate than your grandparents did forty years ago.

Let The McLeod Group Network assist with ALL your Real Estate needs! 971.208.5093 or [email protected].

By: KCM Crew

4 Reasons Why Fall Is A Great Time to Buy A Home!

by Amy McLeod Group

Here are four great reasons to consider buying a home today instead of waiting.

1. Prices Will Continue to Rise

CoreLogic’s latest Home Price Insights report reveals that home prices have appreciated by 6.2% over the last 12 months. The same report predicts that prices will continue to increase at a rate of 5.1% over the next year.

Home values will continue to appreciate for years. Waiting no longer makes sense.

2. Mortgage Interest Rates Are Projected to Increase

Freddie Mac’s Primary Mortgage Market Survey shows that interest rates for a 30-year mortgage have already increased by half of a percentage point, to around 4.5% in 2018. Most experts predict that rates will rise over the next 12 months. The Mortgage Bankers Association, Fannie Mae, Freddie Mac and the National Association of Realtors are in unison, projecting that rates will increase by half a percentage point to around 5.1% by this time next year.

An increase in rates will impact your monthly mortgage payment. A year from now, your housing expense will increase if a mortgage is necessary to buy your next home.

3. Either Way, You Are Paying a Mortgage

There are some renters who have not yet purchased homes because they are uncomfortable taking on the obligation of a mortgage. Everyone should realize that unless you are living with your parents rent-free, you are paying a mortgage – either yours or your landlord’s.

As an owner, your mortgage payment is a form of ‘forced savings’ that allows you to build equity in your home which you can then tap into later in life. As a renter, you guarantee your landlord is the person building that equity.

Are you ready to put your housing cost to work for you?

4. It’s Time to Move on with Your Life

The ‘cost’ of a home is determined by two major components: the price of the home and the current mortgage rate. It appears that both are on the rise.

But what if they weren’t? Would you wait?

Look at the actual reason you are buying and decide if it is worth waiting. Whether you want to have a great place for your children to grow up, you want your family to be safer, or you just want to have control over renovations, maybe now is the time to buy.

If the right thing for you and your family is to purchase a home this year, buying sooner rather than later could lead to substantial savings.

Contact the professionals on the McLeod Group Network to start the search for your new home! 971.208.5093 or [email protected]

By: KCM Crew

Be Thankful You Don’t Have to Pay Your Parents’ Interest Rate!

by Amy McLeod Group

Interest rates hovered around 4% for the majority of 2017, which gave many buyers relief from rising home prices and helped with affordability. In the first quarter of 2018, rates have increased from 3.95% up to 4.45% and experts predict that rates will increase even more by the end of the year.

The rate you secure greatly impacts your monthly mortgage payment and the amount you will ultimately pay for your home. Don’t let the prediction that rates will increase stop you from purchasing your dream home this year.

Let’s take a look at a historical view of interest rates over the last 45 years.

Bottom Line

Be thankful that you can still get a better interest rate than your older brother or sister did ten years ago, a lower rate than your parents did twenty years ago, and a better rate than your grandparents did forty years ago.

Let The McLeod Group Network help you evaluate your ability to purchase a home in today’s market! 971.208.5093 or [email protected].

By: KCM Crew

A ‘Buyer’ in Hand is Worth Two in the Bush

by Amy McLeod Group
A ‘Buyer’ in Hand is Worth Two in the Bush | MyKCM

In today’s highly competitive seller’s market where there are more buyers than there are homes for them to buy, some sellers may feel like the ball is in their court.

And they would be right when it comes to choosing which offer to accept, the closing date, or even which improvements they are willing to make to their house prior to selling.

One thing to remember though, is that there is always a line that shouldn’t be crossed.

Interest rates can change, financing might not go through, the appraisal might not come back at the price that you have agreed to. These are all opportunities to work with your buyer to make sure that the sale still happens.

You may think that, because buyer demand is so high right now, you can choose to make your buyer jump through hoops. But what happens if they reach their limit and need to walk away? You’re starting over… weeks, maybe months later… and other buyers may wonder what’s wrong with the house since the last deal fell through.

The Golden Rule

We were all taught from a young age to “treat others as you would like to be treated.” This shouldn’t change once you have a buyer who seems as though they would do anything to buy your home.

Find out how much your current home is worth! 971.208.5093 or [email protected]

By: KCM Crew

The High Impact of Low Interest Rates on Your Purchasing Power

by Amy McLeod Group

According to Freddie Mac’s latest Primary Mortgage Market Survey, interest rates for a 30-year fixed rate mortgage are currently at 3.96%, which is still near record lows in comparison to recent history!

The interest rate you secure when buying a home not only greatly impacts your monthly housing costs, but also impacts your purchasing power.

Purchasing power, simply put, is the amount of home you can afford to buy for the budget you have available to spend. As rates increase, the price of the house you can afford will decrease if you plan to stay within a certain monthly housing budget.

The chart below shows what impact rising interest rates would have if you planned to purchase a home within the national median price range, and planned to keep your principal and interest payments between $1,850-$1,900 a month.

The High Impact of Low Interest Rates on Your Purchasing Power | MyKCM

With each quarter of a percent increase in interest rate, the value of the home you can afford decreases by 2.5% (in this example, $10,000). Experts predict that mortgage rates will be closer to 5% by this time next year.

Act now to get the most house for your hard-earned money. Contact The McLeod Group Network at 971.208.5093 or [email protected] 

By: KCM Crew

Is 2017 the Year to Move Up to Your Dream Home? If So, Do It Early! | Keeping Current Matters

If you are considering moving up to your dream home, it may be better to do it earlier in the year than later. The two components of your monthly mortgage payment (home prices and interest rates) are both projected to increase as the year moves forward, and interest rates may increase rather dramatically. Here are some predictions on where rates will be by the end of the year:

Freddie Mac

While full employment and rising inflation are signs of a strong economy, they also have the potential to push mortgage rates and house prices up. The higher rates and higher prices create significant affordability concerns, which may continue to characterize the housing market for the rest of 2017.”

Lynn Fisher, Vice President of Research & Economics for the Mortgage Bankers Association

By the time we get to the fourth quarter of this year, we will still be under 5 percent – we are thinking 4.7 percent…Something north of 5 percent by the time we get to 2018, and by the time we get to 2019, we show fourth-quarter rates hitting 5.5 percent.”

Mark Fleming, First American’s Chief Economist

Despite some regional disparities, title agents and real estate professionals do not expect increasing mortgage rates to have a significant impact on the housing market this spring. Continued good economic news, increasing Millennial demand and confidence that buyers will remain in the market even if rates exceed 5 percent bode well for 2017 real estate.

Len Kiefer, Deputy Chief Economist for Freddie Mac

We will probably see rates higher at the end of year, around 4.5%.”

Bottom Line

If you are feeling good about your family’s economic future and are considering making a move to your dream home, doing it sooner rather than later makes the most sense. Contact The McLeod Group Network today at 971.208.5093 or [email protected] 

 

Displaying blog entries 1-7 of 7

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The McLeod Group Network
Keller Williams Capital City
1900 Hines St SE #220
Salem OR 97302
971-208-5093
Fax: 971-599-5229

**Disclaimer: Amy McLeod, and her team, do not initiate, process, or service mortgages.  And provide this information only as a service.  You should confirm information here with your Licensed Mortgage Lender.