CRS, GRI, CRB, Broker Owner
Phone: (406) 586-1321
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Real estate goes well beyond simply viewing a few homes and picking the one with the best curb appeal. There are endless moving pieces and professionals involved with each step of a successful transaction. One key element to keep a deal moving forward for most home buyers is the process of finding the right mortgage product for their personal situation. Though REALTORS® have a good overall knowledge of lending, I asked a respected local lender to contribute this month. Cyndy Rigler (NMLS License #282027) is the President of Western Home Mortgage in Livingston, and I appreciate her assistance with providing an up-to-date look at the effect of interest rates on the residential real estate market.
“Home buyers who have recently obtained residential mortgages have benefited from interest rates at historical lows. After reaching a high of nearly 19% in 1981, mortgage rates have steadily declined and remain in the low single digits. When I opened Western Home Mortgage in 1995, interest rates had dropped below 10% and many Livingston homeowners were able to refinance their mortgages, substantially reducing their monthly payments and receiving cash back for home improvements. Livingston saw many homes receive face-lifts, and home values increased due to updated amenities and much needed maintenance.
Since the housing crisis in 2008, rates have consistently stayed under 6.0%. Even though mortgage rates are expected to increase over the next year, we are still seeing rates in the mid-4% range. We often have customers ask “what is the rate today?” There isn’t a quick answer to that question since there are many variables that affect mortgage rates. Rates vary based on loan purpose, such as purchase, rate/term refinance or cash-out refinance. Also, rates and fees vary based on the loan program. We compare rates for our customers from various lenders for conventional loans, FHA, VA and Rural Development programs. We often find that conventional loans with private mortgage insurance are more cost effective over the term of the loan than government loans. FHA and Rural Development loans typically have lower interest rates but also include Up-Front Mortgage Insurance fees plus monthly mortgage insurance, often for the life of the loan. To determine the best scenario for our customers, we determine the total cost of each loan scenario and compare the cost over the term of the loan.
Credit scores have a major effect on interest rates as well. Recently, we have seen significant differences in credit scores reflected on the credit reports obtained for mortgage purposes compared to credit scores quoted by customers’ credit card companies. The credit reports we obtain include data from all three major credit bureaus; Equifax, Experian and TransUnion and reflect actual credit scores. It is probably wise to check with at least one of these bureaus annually to know the true credit score. Borrowers’ eligibility and interest rates are determined by the mid-credit score reflected on their credit reports. There can be a substantial difference in rates and product eligibility for borrowers with credit scores in the mid-700’s compared to credit scores in the mid-600’s.
For potential home buyers that are considering a purchase in the next year, we can compare the principal & interest payment at the current rate to what the payment would be if the rate increased .50%. For example, the principal and interest payment for a $250,000 loan at 4.5% on a 30-year fixed rate mortgage would be $1,266.71. The same scenario at 5.0% would be $1,342.05, which is an increase of $75.34 per month. This information helps our customers to know what to expect if rates increase before they purchase a home.”
In today’s fast-paced market, it is very crucial for home buyers to start the financing process early in order to qualify for a loan and feel fully comfortable in pursuing the home of their dreams.