The Fed and Interest Rates

On March 13th, the Federal Open Market Committee lowered its benchmark funds rate to a range of 0% to 0.25%, down from 1.00% to 1.25%.  This “cut” was announced irregularly on a Sunday, almost giving it an emergency feel.  It seems that the Fed is looking to help the economy by using fiscal policy to put a band-aid on coronavirus fears.  The Fed also announced a plan to resurrect their Quantitative Easing, where they approved to allocate funds to purchase US Treasuries and Mortgage Backed Securities, totaling $700 billion.

But the real question is, how is the Fed Funds Rate connected to mortgage rates?  The Fed Funds Rate is the rate banks charge each other for overnight lending and is tied to most forms of revolving consumer debt such as credit cards, home equity lines of credit, and car loans.   This rate is not directly “tied” to longer term mortgage rates. 

When the Fed loosens its policy and cuts rates, several things can happen. The goal is to spur or ignite economic activity, but it can also stir up some inflation. Mortgage rates typically increase when there is a spike in inflation, which is why the Fed’s rate cut on the 13th may push longer term interest rates higher.  With the Fed’s plan to resume Quantitative Easing, however, we could see mortgage rates benefit and move lower due to the accelerated demand of Mortgage Backed Securities. To learn more about the Fed and interest rates, please reach out to one of Advisors Mortgage Group’s trusted advisors today.

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Interest Rates Hit Historic Low

With stocks declining and bonds improving, we are seeing mortgage interest rates drastically drop.  Interest rates have hit a new historic low!  Another index to follow to help monitor the direction of interest rates is the US 10-year note yield, which has also reached a new historic low.  Lower interest rates mean lower monthly payments, so this is a great time to see what you may qualify for whether you are considering purchasing or refinancing a home.

In addition to the good news on interest rates, the updated appreciation report from CoreLogic was just released.  This Home Price Index report showed that from January 2018 to January 2019, homes across the nation had an average appreciation of 4%.  CoreLogic’s future outlook shows that homes will continue to appreciate by a whopping 5.4%!

Whether you are in the market to purchase or refinance, both can be very favorable. With historically low interest rates and homes continuing to heavily appreciate, this a great time to speak with a professional and plan your future. 


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30-Second Update:  The Spring Market is Here!

New home sales, which consist of newly-constructed homes, surged 7.9% on a monthly basis in January.  The seasonally-adjusted annual rate of 764,000 units marked the highest level since July of 2007.   This strong report is reflective of the increased level of confidence amongst home builders, who are looking to capitalize on the limited inventory of existing homes on the market.

Due to much milder temperatures than expected, the spring housing market is about to head into full swing, and an influx of homes are about to hit the market.   If you are a current homeowner and you are looking to sell, now seems to be the perfect time to put your house on the market, to not only capitalize while inventory remains low, but to also take advantage of hungry home buyers looking to benefit from the ultra-low interest rate environment that we are currently in.

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Is Renting the More Affordable Option?

Freddie Mac recently compiled a survey finding that 84% of renters believe that renting is more affordable than buying a home.  When they polled homeowners, 85% of them said owning a home is more affordable than renting.  Who is correct?  Well, you have to take a deeper look into the financial picture and have a full understanding of current loan programs to really see the answer. 

A lot of renters still believe you need to put 20% down to purchase a home, which may lead to miscalculating their financial plan.  Also, the latest release from the Consumer Price Index (CPI) showed that rents increased last month by 0.4% and by 3.8% year over year!  On the other end, if you purchased a home last year, CoreLogic reported that homes across the nation on average increased in price by 4% and are forecasted to increase by 5.2% going forward. Going back to the survey data, we see that 40% of renters are saying that they plan to purchase a home sometime in the future and almost half of the polled homeowners are planning on some type of renovation project.

So who is right? Every financial situation is unique, but this could be the best time for many renters to sit with a professional and discuss what it may take to purchase a home. With rent continuing

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30-Second Update: Purchasing a Home Despite Student Loan Debt

Recently, student loan debt has been a major hurdle for prospective homeowners.  Today, more than two-thirds of college graduates have student debt, compared with less than 50% in the early 1990s.  In addition, the average balance for today’s college graduates is $30,000, versus $9000 back then.  A $30,000 balance equates to a $400 monthly payment, which can impact the ability for the prospective home buyer to qualify. 

As of 2017, Fannie Mae made it much easier for home buyers with student loan debt to qualify for a mortgage, by allowing lenders to consider their lower, and more flexible student loan repayment plans.  The two types that are most commonly used are extended term payment plan, which would spread the payment over a longer period, and income-based repayment plan which would allow for your current income to play a factor (some payments as low as $0) in how much your monthly payment will be.

Overall, there are alternative options to a hindering student loan debt, that will allow you more flexibility when looking to purchase or refinance a home. 

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