The housing market is, like stocks, oil, and bonds based on the predictions of the future market. Because of this there is typically a vast amount of minute changes will grander changes occur slowly over time. Eventually an emerging trend breaks which usually reflects the future of the market.
Currently, the trend has been leaning towards a rise in interest rates. Most of the increase comes from speculation that the Federal Reserve was going to slowly stop buying bonds. This fear led to a jump in fixed-rate mortgages – nearly 1.5% in less than half a year. On a $250,000 30-year fixed mortgage, this 1.5% increase would cost home owners over $200 per month.
Will Rates Continue To Rise?
The release by the Federal Reserve that they will continue to buy bonds helped to slow the interest rate rise and have slowly begun to reverse. However, economists do not expect the drop to exceed .5%. For the next year, rates are expected to fluctuate around 4.5% with slight gains and drops as can be expected from any volatile market.
Current forecasts, assuming no more massive shocks like the Federal Reserve bond-buying scare, predict interest rates will make another record again sooner or later.
While no one (excluding, of course, the lenders) want to see interest rates rise, current rates are still well below the pre-bubble standard of six or seven percent. Both economists and lenders are aware that the number of mortgages will drop drastically if interest rates climb much higher than 5%, and the federal government has measurements in place to avoid lending at higher rates for those who will be, ultimately, unable to afford it.
Buy Now Or Buy Later?
For potential home owners with the means, or nearly the means, to buy a home, sooner is definitely better. While interest rates should remain approximately static for the next year or so, rates will begin to rise. Furthermore, there is an incentive for lenders to offer homes loans at higher rates to more customers, which means more competition in the market. Already, many potential home owners have to compete for many houses before they are able to finally purchase a home. And, once rates increase, there is less incentive to offer more competitive rates regardless of credit rating because the demand will be established.
While the market may continue a slight decrease through the end of the year, there is no guarantee. If you are able to purchase a home, or are closing in on your goal for purchasing a home, now is a good time to start looking or negotiating for a home.
How to Compare Mortgage Interest Rates?
Deciding upon a mortgage product can be a difficult job. You need to think about several factors before you could get a package suitable for your circumstances. Apart from taking in the quoted rate, you need to consider the closing costs, annual percentage rate (APR) and mortgage points to get an idea about the true cost of the loan.
Ask for Good Faith Estimate
It is advisable to get mortgage quotes from at least three lenders. Request each lender for a print of the Good Faith Estimate (GFE). Each quote will list the loan amount, the monthly interest rate, the loan term and a fair approximation of the closing costs of the mortgage. The upfront closing costs can add a significant amount to the cost of your mortgage.
Most lenders charge a sum for discount points at closing. One point is equivalent to 1% of the mortgage amount. Lenders offer you a specific discount on the interest rate if you pay the points.
It is crucial to know the rate of the mortgage without the effect of discount points. You may then work out the rate of the product after factoring in the discount points.
Some lenders charge origination points to regain the costs incurred in the loan origination procedure. Origination points do not benefit the borrower. There is no advantage to opt for a mortgage product with origination points, unless the other features of the mortgage offer financial benefits.
Compare APR Values
Request each lender for the Truth in Lending statement. This document details the annual percentage rate (APR). The APR indicates the actual cost of the mortgage expressed as an annual rate. The rate calculates the amount of interest you would have to pay after including the loan origination fees, pre-payment penalties, origination points, discount points and private mortgage insurance costs. In most cases, a loan offer with a low APR value would indicate a profitable deal for a borrower.
The APR does not give a definite pointer for adjustable rate loans because the lender defines the rate based on market predictions, which can be quite misleading. However, you may consider the APR for deciding upon a fixed rate product.
There are other fees for title insurance, document preparation, property appraisal costs and various other mortgage services. You must consider the costs involved in each of these items before deciding on a loan product.