2018 Planned Rate Hikes and How Home Buying Will Be Affected

Interest rates can affect many aspects of your financial life and are driven by the monetary policy decisions of the Federal Reserve. Major banks use these monetary policy decisions when borrowing or lending funds.

The Federal Reserve agreed to raise its key interest rate of 1.25% to 1.5%., the third increase in this rate in 2017. The raised rate will push up rates for credit cards, adjustable-rate mortgages and home equity lines of credit. Its effect on fixed-rate mortgages will not be as pronounced.

Mortgages typically come with 15 to 30 year terms which is far longer than short-term borrowing affected by the federal funds rate. Therefore, mortgage rates which have been below 4 percent for the majority of 2017 are not as sensitive to the incremental rate increases.

How the Interest Rate Increase Will Affect Individuals Seeking a New Mortgage and Homeowners With An Adjustable Rate

The individuals that are most vulnerable to this rate increase are those who are seeking a new mortgage or already have one with an adjustable rate. If you have an adjustable rate mortgage, the rising interest rates may affect your rate when your introductory period ends.

You may want to consider refinancing your adjustable rate mortgage to a fixed-rate one without extending the term of it. Opting for a 15-year fixed rate mortgage may also decrease the total amount you pay in interest.

In addition, if you’re considering buying a home through a new mortgage, you should expect an interest rate for a 30-year mortgage to rise to about 4.40 percent, up from the current 3.95 percent rate.

How the Interest Rate Increase Will Affect Homeowners With a 30-Year Mortgage

In the event you already have a 30 year mortgage, the increased interest rates will not affect your monthly payments. This may make it tempting for you to stay in your current home and keep the interest rate you locked in rather than selling your home and applying for a mortgage with a higher interest rate.

How the Interest Rate Increase Will Affect Homeowners With a Home Equity Line of Credit

If you have a home equity line of credit, your rates will likely increase, meaning your payments will increase as well. It’s important to understand that even if your payments do rise, this is because the Fed believes there has been improvement in the economy and there will be more economic growth in the future. You may find that you get a raise at work or find a higher paying job.

How the Interest Rate Increase Will Affect Rental Property Owners

If you own rental properties, the rate increase may help you out because more people will be tempted to rent rather than buy a home. Increases in occupancy and rental rates can increase the value of your real estate.

By doing whatever you can to keep your interest payments low and paying off your debt as soon as possible, you can ensure that increased interest rates have a less drastic effect on your mortgage and financial situation.

Contact The Shevins today for a consultation on anything
Calabasas and Hidden Hills real estate.

Mortgage Questions Answered for Homebuyers

When looking for a home, one of the biggest concerns you will have as a buyer is your mortgage. This is not something any home buyer should take lightly. You’ll be paying this rate for 30 years (Unless you decide to move well before then). How large will your mortgage be? What’s the monthly rate? You should research lenders to find one that works best for you.

The most recent rates have changed little over the past year. As of July 19, the 30-year fixed mortgage stood at 4.08%, while the 15-year fixed sat at 3.48%. The adjustable rate mortgage stayed still at 3.92%.

So, what does all this mean for you?

It means that right now is a great time to buy a home. Mortgage rates change as regularly as a heartbeat, but they are low. For those of you who bought a home before the Great Recession, you remember those rates. They were high. Those of you who bought homes decades ago, in the 80s and earlier, remember those sky-high rates.

However, those days are long gone. They are not even a speck on the rearview mirror. The rates today and those in the near future, as they stay around those numbers, make it a smart decision to purchase a home.

But what if you are looking for a luxury home?

Your options are slightly smaller. This is due to limits on the conventional loan amount you can receive through a lender thanks to regulations (usually the limits are proscribed by Fannie May and Freddie Mac, whom we’ll discuss later).

The jumbo mortgage differs from a regular mortgage because the lenders are taking a great risk. It’s also for these reasons that the requirements to qualify for a jumbo mortgage are stricter. The buyer must pay a higher down payment than conventional loans, up to 30% of the home’s value. The buyer must also have a great credit score (Higher than 700), strong debt-to-income ratio (This means the amount of debt you have versus the amount of income you make. In this case, it can be no greater than 43%). The buyer also needs to have up to a year of reserves in the bank to ensure that they can keep paying for the house should something catastrophic happen, like the loss of a job.

What is the next step? How do you find the right mortgage for you?

There are several options to choose from. Fannie May or Freddie Mac. Just about every bank. Mortgage lenders. The VA. Even an online mortgage company. You have more options than you ever thought possible. But you need to research each of those options to find the best one.

Depending on your preferences and your current finances, you should shop around for the best terms. Don’t just go to the first place and say, ‘I’d like a mortgage, please.’ Unless you have a long-standing relationship with a bank who will give you preferential treatment, it pays to check out several banks, mortgage lenders, Fannie and Freddie, and so forth to determine the best option for you now and in the future. It also helps to ask about how you can refinance your mortgage in the future as many homeowners refinance their mortgages at some point to take advantage of better rates.

If you are not sure where to start, ask your real estate agent. We have relationships with a variety of mortgage lenders and we can help you set up informational meetings to discover your best option. We are your ally in both buying a home and finding financing for your new home. It’ll pay to ask, sometimes literally.

Contact The Shevins today for a consultation on anything
Calabasas and Hidden Hills real estate.