Monday, November 14, 2016

Mortgage Rates Trumped Up!

Posted by: Mike Dulla, President, United Home Loans

Mortgages got crushed over the last four days as the markets have reacted to Donald Trump being elected President. Will interest rates continue to increase as the markets price in the prospect of Trump’s proposed tax cuts and roll back of the Dodd-Frank banking and mortgage regulations? As of last Tuesday, election day, we were able to offer clients with credit scores of 740 or higher and an 80% or less loan to value, a 30-year fixed rate of 3.375%/3.528 APR.  As of today, that same 30-year fixed rate had gone up .50%.  

How does this impact affordability? 
Prospective home buyers should keep in mind that every 1% increase in rates impacts home affordability by approximately 10%. The payment for a $300,000 mortgage loan at 3.5% is about the same as a $270,000 loan at 4.5% (payments are $1347 and $1368 respectively). So, this .5% increase in mortgage rates has basically shaved off about 5% in total home and mortgage affordability for a new home purchaser.

Where will rates go from here? 

 No one knows. And don’t believe them if they tell you they do. But, we do know that rates are still incredibly low by historical standards. According to the Freddie Mac Primary Mortgage Market Survey, the monthly rate recorded for a 30-year fixed had never been below 6% until April of 2009. Freddie Mac has been gathering this data since 1971. Considering that rates are still right around 4%, that is still an incredibly low rate.

30-year Fixed Monthly Mortgage Rates in November for the Last 15 Years:

Is this still a good time to buy your first home? 
This depends on numerous factors such as your job stability, current savings, current debts, possible income and family changes over the next three to five years and the likelihood that you will stay in one geographic area for at least another three or more years. But considering that rents are still very high, rates are still historically low and home prices are just getting back to their pre-recession highs, you should at least do the math to determine if buying makes sense for you in case these rates do continue to climb.   

About Mike…
Mike Dulla is the President and Founder of United Home Loans, a mortgage banking firm with offices in Chicago and Westchester.  United Home Loans opened in 2002 and has funded $3 billion in mortgage loans.  

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