Written by Justin Rutkowski – Mortgage Loan Officer, Breton
If you currently own your home and you’re looking to downsize or upgrade to a different home, but rising interest rates and lower inventory numbers are discouraging – you’re not alone. You’re one of millions of Americans facing the same challenges. Having a holistic perspective about the housing market is an important part of making a move in the current real estate market we find ourselves in. Below is information important and relevant to second or third-time homebuyers in today’s market.
Why are mortgage rates high?
Mortgage rates can fluctuate based on a range of factors, some of which include:
- The Federal Reserve impacts mortgage rates by adjusting the federal funds rate. The federal funds rate is the interest rate that banks charge each other for overnight loans. When this rate goes up, mortgage rates tend to follow suit.
- The overall health of the economy also plays a role in mortgage rates. When the economy is strong, lenders may feel more confident about lending money, which can lead to lower rates. Conversely, when the economy is weak, lenders may be more hesitant to lend money, which can lead to higher rates.
- Different types of loans may come with different interest rates. For example, adjustable-rate mortgages (ARMs) may have lower initial rates than fixed-rate mortgages, but those rates can change over time.
Is it always best to take the lowest rate?
Not necessarily. Sometimes the lowest rate does not equal the lowest monthly payment. For example, below are two different loan types for the same scenario: $250,000 purchase, 20% down, $200,000 loan amount.
- Conventional
- 6.5% rate
- No funding fee, no mortgage insurance with 20% down payment
- $1,264 monthly payment
- FHA
- 5.75% rate
- 1.75% funding fee ($3,500) and $82.85/month in mortgage insurance
- $1,270 monthly payment
The loan program with the lower rate ends up costing $6 more per month, increasing the overall loan amount by $3,500 because of the funding fee and private mortgage insurance (PMI). It is important to understand all terms of your mortgage loan when making a purchase, not just the advertised rate.
What are some important things to consider?
The market you sell in is the same market you buy in. However, when you are selling your home, chances are you can get multiple offers — sometimes for more than asking price! There are many ways to structure your purchase to use the proceeds from your sale to increase your down payment on your next home.
At Michigan First Mortgage, we pride ourselves on crafting individual strategies for all our members to help them accomplish their dreams of homeownership. Contact a Mortgage Loan Officer today!