Mortgage interest rates fell to a new high this week as house buying activity hit the point.
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For the week ending July 2, the average interest rate for a 30-year fixed rate mortgage dropped to 3.07% with 0.8 discount points paid, according to Freddie Mac's weekly rate report. This is down 0.06 percentage points from 3.13% last week, also a historic low. Mortgage rates remained below 3.3% for nine consecutive weeks. A year ago the rate was 3.75%.
The average rate applied for a 15-year fixed rate mortgage also decreased, falling by 0.3 percentage points to 2.56% with 0.8 points paid. The 15-year interest rate for the same week last year was 3.18%. Meanwhile, the average rate on a 5-year floating rate mortgage was 3.00% with 0.3 discount points paid, down 0.08 percentage points from last week. "Mortgage rates continue to drop slowly downwards with a clear possibility that the 30-year average fixed-rate mortgage may fall below 3% by the end of the year," said Sam Khater, chief Freddie Mac economist. "On the economic front, incoming data suggest that the rebound in economic activity has stopped in the past two weeks with a modest decline in consumer spending and a slowdown in purchasing activity" . Employment data released on Thursday show that the economy added 4.8 million jobs in June and that the unemployment rate has dropped to 11.1%. Earnings were in multiple sectors and much higher than expected. “This relationship is nothing but positive for the housing and mortgage markets. The stronger job market will support purchases of new homes, as well as helping homeowners to pay off mortgages, "said Mike Fratantoni, chief economist at the Mortgage Bankers Association. However, there are doubts that the growth of coronavirus outbreaks in some places could weaken or halt recovery. Home Buying Dips Mortgage applications slid for the week ending June 26, according to MBA data. House purchase requests decreased by 2% compared to the previous week, marking the second consecutive week of falls. Despite the drop, applications were still 15% higher than the same week a year ago. The tightening of housing supply continues to leave home buyers with fewer options. "After two months of strong growth, purchase applications declined for the second week in a row," said Joel Kan, associate vice president of economic and industry forecasts for the MBA. He went on to note that the slowdown could be an indication that "pent-up demand is starting to drop" and that the shortage of supply is leaving buyers with fewer options and higher house prices. "The average loan size for purchase applications has increased to a record high in our survey – further evidence that tight inventory conditions are leading to faster price growth," added Kan. Refinances Refinancing requests also decreased by 2% week over week, according to the MBA, despite the fact that interest rates remained at historic lows. Kan noted that "it is possible that many borrowers have already refinanced or are waiting for rates to drop further." Refinancing applications made up about 61% of total mortgage applications and were 74% higher than those of the same week last year. Mortgage Interest Rate Forecast Ten-year Treasury yields, a key benchmark for mortgage rates, opened more than 0.7%. The yield on the 10-year note opened on Thursday at 0.707%, an increase of 0.025 percentage points since Wednesday's close of 0.682%. Prior to March, the note's yield had never fallen below 1%, even during the Great Recession of 2008. It remains to be seen what effect the positive June numbers on employment will mean for the interest rates. interest in the near future. "Although this surprisingly strong relationship will exert some upward pressure on interest rates, we do not anticipate that the Fed's commitment to keep rates at zero for the foreseeable future will change," MBA's Fratantoni said. Treasury yields have remained low as the Federal Reserve has indicated that it expects to maintain the short-term rate on federal funds in its current range from 0% to 0.25% until 2022. The Fed has also doubled the its commitment to continue purchasing mortgage-backed securities and Treasury bonds to help control market volatility and maintain liquidity. Factors Affecting Your Personal Mortgage Rate Not all buyers can expect to get the best mortgage and refinance rates. Credit scores, loan term, interest rate types (fixed or adjustable), down payment percentage, home location and loan size will affect the mortgage rates offered to individual home buyers . Rates also vary between lenders. An estimated half of all buyers look to a single lender, mainly because they tend to trust referrals from their real estate agents. This means that they could lose a lower rate elsewhere. Last year, Freddie Mac reported that buyers who had received offers from five different lenders had an average of 0.17 percentage points lower on their interest rate than those who had no longer received quotes. If you want to find the best rate and duration for your loan, we recommend that you first search. Interest Rates and Monthly Payment More than other factors, the annual percentage rate on property purchases will affect monthly payments, whether it is refinancing or buying a new home. On a $ 200,000 home loan with a fixed rate for 30 years: an interest rate of 4% = $ 955 in monthly payments (excluding taxes, insurance or HOA fees). At the 6% interest rate = $ 1,199 in monthly payments (excluding taxes, insurance or HOA charges). With an interest rate of 8% = $ 1,468 in monthly payments (excluding taxes, insurance or HOA fees). Refinancing at a lower interest rate could save hundreds of dollars a month if the same loan conditions are maintained. Shortening the loan term could cancel monthly savings but save thousands during the loan term. You can experiment with a mortgage calculator to find out how much a lower rate could save you. Other factors besides interest affect the amount you will pay in mortgage payments: Private Mortgage Insurance: PMI adds up to 1% of the value of your home loan to your payment each year. On a $ 200,000 mortgage loan, 1% PMI would add $ 167 per month to the payment. Conventional loans do not require private mortgage insurance when the buyer makes a down payment of at least 20% or refinances less than 80% of the home's value. FHA loans do not require PMI, but require what is called Premium Mortgage Insurance, which is paid over the life of the loan if a down payment of less than 10% is made. VA loans do not require SMEs, MIPs or down payments. Closing costs: some buyers finance the closing costs of the new home in the loan, increasing the debt and increasing the monthly payments. Loan Term: Choosing a 15-year mortgage instead of a 30-year mortgage will increase monthly mortgage payments but will reduce the amount of interest paid over the life of the loan. Fixed vs. ARM: The monthly payment of a floating rate mortgage may change from year to year after the introductory period of the loan has expired. The payments of a fixed rate loan remain the same for the duration of the loan. Taxes, HOA fees, insurances: A monthly mortgage payment could also include homeowners insurance premiums, city or county property taxes, and homeowners association fees. Check with your real estate agent to find out how much they would add to your payments. What type of mortgage loan do you need? Homebuyers for the first time can enter a mortgage brokerage office or visit an online lender without knowing what type of mortgage they need. But it is always better to have an idea of what you are buying, especially because you cannot control other factors such as house prices and current rates. Mortgage loan options include: Conventional loan: buyers with higher credit scores and higher down payments can obtain a conventional mortgage with a fixed or adjustable rate. Mortgage interest rates can be low for qualified buyers. Subsidized Loans: The Federal Housing Administration and the United States Department of Agriculture are helping first-time buyers and homebuyers in low-income areas buy houses by subsidizing their mortgage loans. FHA and USDA loans allow buyers with lower credit profiles (a FICO score of 580) to obtain affordable home finance. Subsidized loan restrictions include loan ceilings and safe housing inspections. These loans are for single family homes in most cases. Veteran Affairs Loans: Veterans and active service members can purchase homes without down payment and without SMEs through the Department of Veterans Affairs loan program. Banks grant loans guaranteed by the VA. VA loans require a financing fee that can range from 1.4% to 3.64% for first time home buyers. Repeating VA borrowers or refinancing require lower fees. Even with the fee, these loans can save veterans thousands of dollars a year. Huge Loans: Homes in high-value real estate markets like San Francisco and New York City may not be part of a conventional or FHA loan. Jumbo loans can help because they exceed the compliant loan limits of Fannie Mae and Freddie Mac. Will today's mortgage rates save you money on a refinance? You should consider refinancing your home loan if your current mortgage rate exceeds today's mortgage rates by more than one percentage point. Refinancing fees and closing costs would reduce your savings. You also need to consider whether your credit score would qualify you for the best refinancing rates today. Many online lenders can give you free quotes to help you decide if the money you save in interest expenses justifies the cost of a new loan. Try to get a quote with a weak credit check that won't harm your credit score. You can improve interest savings by going with a shorter loan term like a 15 year mortgage. Your payments may be higher, but you could save thousands of interest over time and you would pay for your home earlier. How to Find the Best Mortgage Lender Homebuyers have dozens of choices for lenders. Your local bank or credit union probably writes mortgage loans with rates close to the current national average. A loan officer at your local branch office could guide you through the process. Online lenders have expanded their market share over the past decade. You could get pre-approved in minutes. The loan amount combined with the current mortgage rates could define your price range for house prices in your area. Many online lenders also assign a dedicated loan agent to offer continuity while shopping. Look around to compare rates and conditions and make sure your lender has the loan option you need. For example, not all lenders take out USDA-guaranteed mortgages or VA loans. If you are unsure of a lender's veracity, ask for his NMLS number and look for reviews online. Should You Buy Discount Points to Lower Mortgage Rates? Many lenders sell discount points. Buying discount points means that you would pay more in advance to reduce the mortgage rate which could save you money in the long run. A mortgage discount point normally costs 1% of the loan amount and could shave 0.25% off the interest rate. With a $ 200,000 mortgage loan, one point would cost $ 2,000. The purchase of two points would cost $ 4,000 which would be due in cash upon closing the loan. These two discount points would translate into a 0.5% reduction in the interest rate. Discount points may pay off but only if you keep your home loan long enough. Selling the house or refinancing the mortgage within a couple of years would short circuit the discount point strategy. But if you stayed in the loan indefinitely, you would reach a break even point after which the discount points would save you more and more over time. Often, spending cash on a down payment instead of discount points saves more unless you know for certain that you've been keeping the loan for years. If a larger down payment can help you avoid paying PMI premiums, put the money over to the down payment instead of the discount points. More from MONEY: Top Mortgage Lenders of 2020 4 million homeowners face mortgage tolerance after CARES Rules have loosened the rules. Is it right for you? How to buy a house when you can't see it in person How low will they go? 6 mortgage experts predict the future of interest rates
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