LOW INTEREST RATES

Create High Hopes For A New Home

The Federal Reserve Bank, the central bank of the United States, dropped interest rates to zero for lenders in March 2020 in anticipation of the negative impact of the coronavirus pandemic. Covid-19 was not the only factor, but it was a key factor for reducing interest rates to some of the lowest levels in history, and this has created some tremendous opportunities for financing and home ownership.

Many have already begun to take advantage of the historically low interest rates as evidenced by the over 20% increase in mortgage applications compared to 2019. According to a NerdWallet survey, as of September 2020, the average rate on a 30-year fixed-rate mortgage was at 2.977%. The average rate on a 15-year fixed rate mortgage was at 2.56%, and the average rate on a 5-year adjustable rate mortgage (adjusted yearly) was at 2.966%.

With some of the lowest interest rates available today for residential home loans, banks and mortgage companies have begun to compete with each other by relaxing their lending standards to attract customers. Here are some things to know in order to take advantage of today’s low interest rates. Before you begin, check out what you need to do.

IF YOU WANT TO BUY A NEW HOME

It is a common belief that interest rates will continue to be low, especially during the pandemic crisis. That means you have plenty of time to increase your credit score, which is the key to making sure you get the best interest rate. But, before you begin, these are things you need to do before you apply for a mortgage loan: request your credit report and clean up any errors on it; plus, make sure you pay your bills on time and do not exceed your credit card balances. If you can hold off from making any major purchases, like buying a car, that would be a good idea while you are trying to qualify for a home loan. Whether you are looking for a new home or planning to buy a second home, now is the time to take advantage of the low, low rates.

IF YOU WANT TO REFINANCE YOUR LOAN

Refinancing your current loan to take advantage of lower interest rates does not make sense for everyone. You would have to take into account any penalties or fees that would roll over from your current mortgage and do the math, calculating the savings over the life of the loan to see if you break even or better. If you do, then it makes sense to refinance. You would in essence be applying for a new loan, so all of the lending requirements still apply—good credit payment history, loan-to-value amount, a qualifying credit score, income/debt ratio, and the standard financial documents needed for a loan.

IF YOU WANT TO LOCK IN THE LOW RATE

It may be tempting to choose a lower interest adjustable-rate mortgage (ARM), but if you are planning to live in your new home for many years, you would be best served by getting a fixed rate mortgage, thus locking in your low interest rate for the life of the loan. Adjustable rate mortgage loans may have lower monthly payments, giving you extra cash to spend on other things, but these loans are typically adjusted every year so if interest rates go up, so will your payment.

The record-setting low interest rates have made homes more affordable for those that can qualify, even as home prices continue to rise. During the pandemic, according to the U.S. Census Bureau and the National Association of Realtors, homebuying has increased, and this has depleted the inventory of homes for sale. While the law of supply and demand suggests there will be an increase in interest rates in the future, no one knows for sure what will happen. What is known is that the low interest rates available today are historically the lowest and are creating the highest opportunities for home ownership.