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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

'How's the Housing Market Right Now?' Answers Ahead

by Amy McLeod Group


Yeehaw, the latest home-buying season is now in full swing! And if you're hoping to buy a house soon, listen up: The real estate market changes on a dime, so if you want to succeed in today's environment, you'll want to take its temperature and act accordingly.

And buyers are in luck: By and large, this year's home-buying season is a far better bet for buyers than in the past. So if you're craving some intel on what to expect—and how to use this to your advantage—here's the info you need to confidently buy a house right now.

The strong seller's market is on the wane

In the recent past, you weren’t altogether wrong if it seemed like buyers were offering their firstborn child in order for their offer to get a fair look—and often for houses that you would have snubbed in less-sizzling markets. But now it’s OK to breathe—and even sleep on it.

As inventory begins to rise, the strong seller's market that characterized last season's home-buying season is fading fast. In fact, many say we’re back into what can be considered more of a buyer’s market, where the seller doesn’t hold all the cards, says Brad Cox, a real estate agent at the Vesta Group of Long & Foster Real Estate, in Lutherville, MD. That means you’re going to have some wiggle room to negotiate.

“While you still want to prepare a competitive offer, your time window is likely to expand—meaning you can think it over before rushing in with an offer," Cox says. "And you aren’t going to have to include some of the riskier elements, such as waiving financing or inspection contingencies, that were a hallmark of past years."

But what you face still varies by the Big L

You’ve heard the adage "location, location, location," but it will definitely be a huge factor in 2019's home-buying season, Cox says. Because while bidding wars are out in most markets, real estate is still very neighborhood-driven.

“While you might see a softening market in some areas, others may still be in a strong seller’s market," he explains.

He says the key metric to look for is “days on market,” which means how long a property has been waiting to sell. If you’re hoping to buy in an area where days on market are staying low, you’ll have to be prepared to act a little faster. But in areas where this number has started creeping up, you might be able to look around a little more.

For an accurate pricing picture, look only at the latest comps

Both buyers and sellers rely on comparables, aka comps, when determining a fair price. But that can get tricky as the market starts to turn, because sellers might be remembering a months-ago heyday and pricing accordingly.

“Buyers should only consider the most recent comps, which means the last three months, because that is the most accurate reflection of where the market is,” says agent Jed Lewin of Triplemint in New York City.

But don’t forget that it’s still very easy to insult a seller

Yes, the house might have been on the market a few more days than it would have been last year and the comps might be sliding, but that doesn’t mean you can expect that anything goes when you’re buying a home in 2019.

“I am seeing far more buyers starting to make very aggressive lowball offers in an attempt to test sellers’ appetites, even if they’re totally serious about a given property,” says Lucas Callejas, an agent at Triplemint. But in places where the market is still warm, that can turn sellers off—and turn their attention to the next offer that comes along instead of yours.

You may be able to get a better interest rate than you think

One of the big stories of 2018 was rising mortgage interest rates—but while they ticked up precipitously by the end of last year, they’ve fallen a bit again, so you could be in a good spot, says Beatrice de Jong, director of residential sales at Open Listings, in Los Angeles.

Bottom line: Now is the time to lock in a great rate, since today’s appealing numbers might not last long.

“Interest rates are predicted to rise in 2019 and 2020, so buyers would be wise to shop for and lock in their interest rate as soon as possible,” de Jong says.

Increasing rates can make a huge difference, she points out, noting that the difference between a 5% interest rate and 5.5% interest rate is $93 a month on a $300,000 mortgage loan, which can easily derail a buyer’s budget.

So even if you are trying to improve your credit or save a few more bucks for the down payment, you might be better off just wading in and locking in the rate, says Jason Lerner, vice president and area development manager for George Mason Mortgage, in Lutherville, MD.

“You might work for three months to burnish your credit, and then find that the rate has risen so much that it doesn’t make a difference,” he adds.

Your credit score might be better than you thought

Two recent developments in credit scoring may help would-be buyers: One is the new UltraFICO, which takes into account how you manage your checking, savings, and money market accounts, in addition to your credit cards and consumer loans. And the second is Experian Boost, which adds your utility and cellphone bills into the mix.

But even if you have a stellar record in all those areas, there’s no guarantee these will be your golden ticket, cautions Lerner. That’s because it’s still early days for these initiatives: UltraFICO is currently available only in a pilot phase in certain areas, and Experian has yet to launch the booster product, although it is taking sign-ups. But as these products become more widely available throughout the year, home buyers may reap the benefits.

“A difference in 10 or 20 points to your credit score can make a difference between approval or denial—and can lower your rate, which can save thousands over the life of a mortgage,” Lerner points out. He also predicts that requirements will loosen a bit in 2019: “You might not think your credit is good enough for a mortgage, but it’s worth talking to a lender to see if there is a program out there that can help.”

Contact The McLeod Group Network to find your new home! 971.208.5093 or [email protected]s.com 

By: Realtor.com, Cathie Ericson

Mortgage Interest Rates Are Going Up… Should I Wait to Buy?

by Amy McLeod Group

Mortgage interest rates, as reported by Freddie Mac, have increased over the last several weeksFreddie Mac, along with Fannie Mae, the Mortgage Bankers Association and the National Association of Realtors, is calling for mortgage rates to continue to rise over the next four quarters.

This has caused some purchasers to lament the fact that they may no longer be able to get a rate below 3.5%. However, we must realize that current rates are still at historic lows.

Here is a chart showing the average mortgage interest rate over the last several decades:

Bottom Line

Though you may have missed getting the lowest mortgage rate ever offered, 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.

Contact The McLeod Group Network to discuss your options! 971.208.5093 or [email protected]

By: KCM Crew 

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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.