After reaching a high of 7% in November 2022, mortgage rates have been like riding a roller coaster. We’ve seen the 30-year fixed rate drop as low as 6.09% on February 2 and then pop back up to 6.73% in early March. Good news for potential homebuyers and refinancers we think they are on the way down!
This ride is largely because of the Fed’s ongoing fight with inflation offset by the fallout from the collapse of Silicon Valley and Signature Bank. It is expected the Fed will implement smaller rate hikes to continue to try and curb inflation as well as protect the banking system. If so, mortgage rates should remain flat and slowly go down for the remainder of 2023. Can somebody just say recession already!
Then we have something with Treasury bonds. Apparently, a good signal is investors moving money into Treasury bonds because they become a better investment. According to Joel Kan, VP and Deputy Chief Economist for the Mortgage Bankers Association (MBA), this “flight to safety” caused a decline in Treasury yields, which are tied to mortgage rates, which then helped push rates for all mortgage types lower.
What’s my takeaway? Continued demand for treasury bonds suggests that mortgage rates are likely to decrease further. More good news for mortgage seekers!
Housing Authority Predictions
Although a major decrease is not forecasted, the MBA is predicting that the rate will continue to drop to 5.2% by the end of 2023. This prediction is based on Freddie Mac’s 30-year fixed rate.
Freddie's weekly Primary Market Mortgage Survey also compiles data from lenders each week on the rates and points for their most popular 30-year fixed-rate, 15-year fixed-rate, and adjustable-rate mortgage products. Freddie’s prediction is that mortgage rates will reach 6.2% by the end of 2023.
No matter which horses you're placing your bets on, the opportunity may exist for homeowners still struggling with rates of 7% or higher to refinance at a lower rate.
Being an optimist, I’m putting my money on MBA. What about you?
Effects on Refinancing
Applications for refinancing have already increased by 5% with borrowers hoping to save on monthly payments. Although still down from last year’s refinance “boom” of 70%, this increase is good for the banks, but borrower benefits could be short-lived.
It sounds like things could roll again and maybe not in your favor. As we’ve just experienced, rates can change rapidly so it remains important for buyers and sellers to keep a close eye on the market and be diligent. If you find a good rate that saves you money, lock it in as soon as possible. Your goal is to be sure you make it over the closing line with a payment you can live with.
Mortgage rates and Homebuyers
Mortgage rates have a huge impact on the amount of your monthly payment, the amount you are qualified to borrow, and even the kind of house you can buy. Lenders factor your rate by taking your total debt and dividing it by your income before taxes to calculate your debt-to-income (DTI) ratio. The standard limit for the affordability of payment is a 43% DTI ratio, and a lower monthly payment usually leads to a higher loan amount.
For borrowers looking for a conventional loan, Fannie has pushed back its plans for an extra charge on DTI ratios above 40% to August 1. Jump in before the 1st to avoid potentially higher mortgage rates, closing costs, or both.
Getting the Best Mortgage Rates Possible
Although higher mortgage rates have resulted in a decrease in buyer demand and caused a slight hiccup in home prices, prices will remain high until new homes become available or sellers become more motivated to list.
Rather than just waiting for that to happen, consider these steps to get the best mortgage rate possible:
Boost your credit score to 780 or higher. That's the new conventional loan credit score benchmark that has replaced the old 740 scores. Furthermore, you should keep credit balances low, and be sure to pay off all your debt on time. If possible, you may also consider taking on a side hustle to pay off debt more quickly. Download our checklist for more tips on how to position yourself for the best loan possible.
Make a bigger down payment or borrow less. If your credit score is 780 and you put 25% down, you can get the best rate on your conventional loan. Lower credit scores aren't as favored, but borrowers with scores between 620 and 700 and a loan-to-value ratio of 70%-80% may get a better rate. Only borrowing what you need as cash-out refinance rates will be much more expensive.
Reduce your total monthly debt load. As mentioned above, lenders measure your DTI ratio by dividing your total monthly debt, including your mortgage payment, by your before-tax income. With a preferred ratio of 43%, Fannie and Freddie may assess an extra charge if your DTI ratio exceeds 40%. So, reduce your debt if you don't plan to buy until August 1.
Consider an adjustable-rate mortgage (ARM). If you don't plan to stay in the home for long, ARMs are worth considering.
Pick a shorter term. A shorter term can help you save thousands of dollars in interest compared to a 30-year fixed-rate loan, as lenders usually charge lower rates for a 15-year term.
Pay points. Paying 1% of the loan can secure a lower interest rate.
Shop Around. Finally, to ensure that you get the best possible rate, compare loan estimates from at least three to five different lenders.
If you have any questions, or you want to start a dialogue, let’s talk!
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https://www.lendingtree.com/home/mortgage/rates/
https://armls.com/docs/2023-February-STAT.pdf
