House Hunters: How Will an Increase in Mortgage Rates Affect Your Bottom Line?

The Federal Reserve Board has been talking about interest rates a lot lately, and has made it clear that an increase will probably happen soon. Back in September, the real estate community breathed a collective sigh of relief when they thought it would be approved, and they decided to wait. But the Federal Reserve was clear that it would be brought up again before the end of the calendar year. People who are currently searching for homes to buy know that mortgage rates will make a difference in their budgets, so it is important to know what to expect.

If mortgage rates increase, then obviously homeowners will either have to pay more each month for a home, or decide on a lower-priced house. Because the rates haven’t been increased in a while, it is expected that the change will be small, and then they will assess the change in the economy.

For a home that costs $200,000, the monthly payment on a 30-year loan with a 4% interest rate is $955. Should the mortgage rates increase to 4.5%, then that payment jumps to $1013, and a 5% rate translates to $1074 each month. House hunters will need to decide if they are willing to pay more each month, or if they need to search for homes in a lower price bracket.

In addition to monthly payments, the increased rate will change how much interest is paid over the life of the loan. Just a half of a percentage point equates to tens of thousands of dollars in interest over 30 years for most mortgages.

The Federal Reserve Board is scheduled to meet on December 6, 2015. October’s employment reports were strong, with good job creation numbers, and lower unemployment. As a result, it’s safe to say that interest rates will probably increase after that meeting. For home buyers who want to take advantage of lower rates, lock in a rate now and get serious about choosing a home.

For assistance in finding the right mortgage for your situation, contact us.

A Glimpse Into the Future of Reverse Mortgage

The ability to take advantage of a reverse mortgage is important to you and it’s important to us as well. So now let’s take a look into what its future holds.

  1. The reverse mortgage has been around since the 1960s — and it will be around in the future. With longevity issues facing larger and larger numbers of our seniors, the reverse mortgage stands to help resolve the aging-in-place concept taking shape today.
  2. In April 2015, the Federal Housing Administration (FHA) issued new guidelines that affect reverse mortgages. Going forward lending institutions must obtain documentation that the reverse mortgage applicant has the money to continue to pay taxes, maintenance fees and insurance. These are the same documentation rules that apply to regular home mortgages and puts reverse mortgages on the same footing with those older forms of lending.
  3. The National Reverse Mortgage Lenders Association tracks home equity, debt, and home mortgage values for seniors. In recent years, the equity values of senior homes has increased and debt has decreased. This bodes well for seniors having enough equity in their homes to take advantage of home equity loans.
  4. Baby boomers have started the retirement explosion. This also is good news for the reverse mortgage industry. Lower investment returns since 2008 together with the rising costs of living into advanced senior status have made the reverse mortgage popular with this generation of seniors.
  5. Experts expect baby boomers to double to 92 million people by 2060. These seniors are rich in home equity but have the lowest median income level of any group. That’s a recipe that bakes up future borrowers and applicants for reverse mortgages.

To talk more about this, or anything else, please contact us.