According to Freddie Mac, the week ending April 6th showed that interest rates for a 30-year fixed-rate home loan averaged 6.28%. This is still much higher than the 4.72% rate of last year, but has come down from the 7% rates that began 2023.
“Compared to the recent 7% average rate peak, the latest rate saves $140 per month for a homebuyer on a $300,000 loan,” said National Association of Realtors Chief Economist Lawrence Yun. He is optimistic that rates will continue a downward trend.
News is mixed on whether rates are rising or falling because lenders are becoming more competitive. The falling demand for new loans has driven lenders to adjust their normal margins. Normally, they offer interest rates at 3% over the FED rate, but some are reducing their margin to get loans.
In terms of predicting interest rates for 2023, Fannie Mae sees the average rate of a 30-year fixed holding at 6.8% in 2023. Freddie Mac is more optimistic with a projection of 6.4%. Currently, rates are anywhere between 6.4% and 6.9%.
The Mortgage Bankers Association believes the 30-year rate will fall to 5.2% next year. However, they are alone in this assumption as the FED has no plans to reduce their rate any time soon.
Rise of the 40 Year Mortgage
The news over the last few weeks is that a 40-year mortgage had been approved by the FHA (Federal Housing Administration.) In the past, these loans were only approved for loan modification to help with default loans. You may read that it is a way to help first-time home buyers afford the monthly payment.
These loans are more difficult to find and have restrictions like higher credit scores, but can reduce monthly mortgage payments, which have risen 30% in the past year. While a 40-year mortgage can lower monthly payments compared to a 30-year mortgage, buyers will pay more interest over time.
For example, when comparing a 30 and 40-year mortgages on a $312,000 loan at 6.85% interest, the monthly payments were $2,044 for 30 years and $1,904 for 40 years.
You’d save $200 per month on your mortgage payments by going with a 40-year loan. However, you would end up spending about $100,400 more in interest over the life of the loan. You’d need to check with your lender to verify if this option is available for a purchase and not just loan modification.
Other Options to Reduce Monthly Payments
Another option to get the monthly payment lower is prepaying interest by buying points upfront.
Some sellers are offering to pay the fee for a 3-2-1 buydown mortgage rather than reduce the sales price. This is a type of loan that starts out with a low-interest rate and rises over the next several years until it reaches its permanent rate.
The interest rate is reduced 3% in the first year, 2% in the second year, and 1% in the third year. For example, a 7% mortgage would charge just 4% in year one, 5% in year two, and 6% in year three before going to 7%. Buyers would have the opportunity to refinance at any time since the cost reduction is paid up front.
The total buydown cost is the difference between the total payments at the original monthly payment and the total payments made at the rate-adjusted monthly payments. In most cases, this amount is lower than reducing the sales price by tens of thousands of dollars. This is why sellers are using this as a way to make their listings more attractive.
Banks Offering Mortgage Specials
Some banks like Bank of America offer special promotions to lower-income buyers. They currently offer programs that include a $10K grant toward the down payment, $7500 toward closing costs and loans with as little as 3% down. US Bank offers $1000 toward closing costs.
Local lender Angie Loukos with Academy Mortgage works with grants from the City, County, and State levels to obtain down payment assistance that is specific to the region that you purchase in. Some of these regional down payment assistance monies are as high as $50,000.00.
There’s also Down Payment Assistance Program (DPA) that allows 100% financing. With DPA amounts up to 5%, no first-time homebuyer requirement, no income restrictions, the option to add a 2/1 temporary buydown to the first mortgage, and both amortized and forgivable DPA options, these products may be the ultimate solution for delivering the dream of homeownership to your borrowers. For more information click on this link or call Angie directly at 925-984-4103
Even while banks and lenders are coming up with creative ways to make new loans more attractive, a lack of inventory is still keeping home prices steady. During Spring and Summer, we normally see inventory increase. If you are considering selling your home for top dollar, now may be the best time.
Contact me today for a free marketing analysis of your home or for a list of available properties.