Where Are Interest Rates Heading?

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Today, our friend Marc Brinitzer from Big Valley Mortgage shares some lending tips with us. We asked him some questions to get a good idea of what's going on in the lending world. Here's what he shared with us:

What are rates today and what can we expect in the future?
If we're talking about conventional interest rates, they are hovering around 4.5%, give or take about .25%. However,  a 15-year fixed-rate mortgage can be obtained for under 4%! Be aware that these rates are very sensitive to credit scores and down payments. FHA and VA loans, on the other hand, are around 4% and sometimes even lower.

Are those rates as good as they were a few years ago?
Almost. Last year, we saw interest rates rise when the Federal Reserve announced plans to stop the QE3 stimulus program. However, rates have slowly been coming back down, so they're slightly more favorable than they were after that initial increase.

What are rates going to look like in 2015?
What's going to happen next is an increase in short-term rates, but people are still waiting on the Fed to announce when that will be. The stimulus consisted of the Federal Reserve buying mortgage-backed securities and US treasuries in the secondary market. The plan was to stimulate the economy by flooding it with money. At some point, they will start to raise the short-term rates, which will then trigger a rise in long-term rates. Everyone is worried that will happen soon, but the Fed doesn't seem ready to let us know exactly when that will happen.

When rates go up, how does that affect a buyer's monthly payments?
When interest rates go up, monthly payments go up. People aren't always aware that lenders are qualifying people to buy at their absolute debt ratio. If rates go up from there, we don't have room to let the payment increase. In cases like that, we have to back the price down on the home. For example, for a $300,000 purchase with a 4% FHA rate, if rates go up .5%, the payment on that house will increase by $85 a month. If this happens, a buyer may no longer qualify for the loan they need to purchase the home they want. For that example, the buyer would only be eligible to purchase for $285,000.

If you're waiting for home prices to decrease, but rates go up, are you doing yourself any good?
Not really. If you decide not to buy a house today because you think it will be cheaper tomorrow, you may not be saving yourself any money if rates go up. In fact, you may end up spending more when home prices go down because the rise in rates have more than made up the difference. Our advice is, if you find the right home, buy it today while rates are low.

It's nice to bring in an expert every once in awhile to give us a full picture of a sometimes confusing topic. If you would like more information on the lending side of real estate, you can reach Marc at (916) 761-3760 or MCBrinitzer@APMortgage.com. He would love to chat with you!

As always, we're your best resource for real estate information in Roseville and the surrounding areas. We're always available to assist you, and would love to hear from you!