The coronavirus pandemic is radically reshaping the economy with
business closures and job losses. But what about the housing market and
mortgages? Is now the time to finance or refinance?
To get some answers Bankrate spoke with David H. Stevens, one of
the nation’s leading mortgage authorities. Stevens is the former CEO of the
Mortgage Bankers Association (MBA) and was the Federal Housing Commissioner
under President Obama. He is the CEO of Mountain Lake Consulting, Inc., a
financial services consulting firm focused on the real estate finance sector.
The interview which follows has been edited for length and
Stevens: Right now, short term, may not be the best time to get a
mortgage. The issues stemming from the virus have impacted the economy in a
variety of ways, but one of the harder-hit sectors is the mortgage market.
Mortgage-backed securities prices have fallen in the past two
weeks and rates are higher than they might be in the weeks to come should things
begin to settle down. That being said, if you are buying a home this could be
an opportune time before the housing market comes back, and while mortgage
rates are a little higher than they were, they are still near their record lows
Stevens: Fortunately, the industry is far more automated than in
previous times. Almost all of the lending process can be done online. From the
application which is almost certainly online for any lender, to being able to
scan and email key support documents needed to approve the mortgage, the vast
majority of the work can be done without the need for face-to-face contact.
Freddie Mac and Fannie Mae also have property
inspection waivers that they offer on a significant percentage of refinance
loans and are committed to expanding the use of alternatives to physical
on-site appraisal requirements. Depending on the lender and the state where the
property is located, the use of e-signatures and other remote signatures may
allow you to skip the closing altogether and simply do the process virtually.
Stevens: The National Association of Realtors reported that
February’s existing home price increase marked the 96th straight month of
While the coronavirus is a significant event and one that is
adversely impacting both the health of the nation and also the economy, the
long-term reality of demographics and housing supply won’t change.
As we look forward to getting past the curve and a return to
work and school we will return to a nation that is creating 12 to 14 million
new households over the next decade, according to the Harvard Joint Center for
Housing Studies. This suggests a significant shortage in available inventory. So,
while the economic recovery resulting from the virus may slow things down for
the short term, the long-term prospect for home price gains remains optimistic.
Stevens: In the short run the impacts of the virus are affecting a
variety of components that make a mortgage rate. Mortgage-backed securities are
out of balance, causing rates to rise, servicing valuations are declining, and
investors that participate in this arena are trying to determine what this
might mean for default rates and more.
That being said, the Federal Reserve
announced a significant increase in their participation in the
market, which will help remove some of this imbalance. I expect rates to once
again start coming down as we move beyond this period. The fundamentals for
lower rates are good, the technical conditions are shorter term and making
rates rise, but this too should pass.
Looking out over the next month, it comes down to the timing and
impact of the legislative efforts and actions by the federal agencies and that
is still not entirely clear.
Stevens: This all depends on the duration of this period and the
impact from the legislative and regulatory efforts being considered right now.
Keep in mind that while most Americans are being told to work
from home, there are millions working remotely. We are seeing growth in select
service industries with companies like Amazon, Insta-Cart, UPS, and more trying
to hire thousands of workers.
Workers employed in travel, events, small retail, and
restaurants are among those that may face the biggest impact. A significant
portion of these employees may not own homes.
So, while there will be a default spike from this, how it will
penetrate home values is still a question. More importantly, forbearance plans
and foreclosure enforcement stoppages have been announced which will hopefully help cushion the
impact, especially as these plans are targeting support for renters as well as
homeowners. This all comes down to how long this lasts and whether we can
flatten the curve of the virus so that America can return to work sooner.
Stevens: Servicers are the companies that collect monthly payments
for mortgage investors. They are also the companies that deal with late
payments, non-payments and foreclosures on behalf of the investors.
This is a huge issue. Servicers reserve funds for “expected
default” and even hold a reserve above that. But when an entire nation is told
to go home and these forbearance programs and foreclosure moratoriums are put
in place, the cumulative burden falls on servicers. If a borrower does not pay
his or her loan, yet the servicer must still pay the holder of the mortgage
security, that cash has to come from these reserves.
If the payments stop coming from a huge percentage of your
customers, like one-fourth, one-fifth, or more of borrowers, the entire system
could collapse. This is why there has been so much effort to create a liquidity
platform at the Federal Reserve, at Ginnie Mae (the Government National
Mortgage Association or GNMA), and with the GSEs (Government-sponsored
Enterprises such as Fannie Mae and Freddie Mac) to fill in the gap and insure
that servicer can function.
A proposal has been sent to Fed Reserve Chairman Jerome Powell
and Treasury Secretary Steven Mnuchin to address this need and legislation is
also being introduced in Congress. It is supported by the key industry groups
as well as some key consumer advocates. It is an absolutely critical need to
create this liquidity platform.
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Help for homeowners and renters during the coronavirus pandemic
has arrived via a variety of state and federal orders and programs.
President Trump on Saturday ordered foreclosures and evictions
to cease for 60 days across the U.S. in response to the coronavirus pandemic
that has idled millions of workers.
news conference, Ben Carson, the secretary of Housing and Urban Development,
said Trump ordered the “immediate cessations” of foreclosure and eviction
proceedings. Officials urged those who are affected by the health crisis and
struggling to make their mortgage payments to contact their loan services about
forbearance on loans.
Capitol Hill to Wall Street to state offices, help for struggling homeowners
affected by the novel coronavirus ramped up last week. Ally Bank announced its
120-day mortgage payment moratorium and Bank of America said it would suspend
mortgage payments for eligible borrowers, though no time limit is yet known.
The Federal Housing Finance Agency (FHFA), Housing and Urban
Development (HUD), United States Department of Agriculture (USDA), Fannie Mae
and Freddie Mac all have announced a freeze on foreclosures and evictions for
at least 60 days as well as forbearance or disaster relief options for
homeowners who can’t afford their mortgage payments.
Freddie Mac and Fannie Mae have also said they would allow
forbearance options to borrowers affected by the pandemic. Forbearance means
your mortgage payments can be suspended for up to 12 months because of economic
hardship that was caused by the coronavirus outbreak. The two agencies back
about half of all mortgages in the U.S.
This collective move to secure the housing of Americans facing
financial hardship is not only ethical but financially wise, says Jeff
Friedman, partner and shareholder at Hall Estill law firm. If this were a
typical economic downturn, there would be a daisy-chain reaction that would
lead to evictions, landlords collecting less rent, lenders losing money, and
foreclosures. But with officials working in concert on a plan that makes sense
for everyone, this kind of chain reaction can be avoided.
“Here, however, the CFPB, HUD, and FHFA have stopped this
process before it starts, giving renters and financial institutions the
opportunity to address claims through a dispute resolution mechanism
administered by the CFPB,” Friedman says. “Furthermore, local sheriffs
throughout the country are ceasing eviction enforcement, and courts are
refraining from taking foreclosure cases. Without this, many people would lose
their apartments and buildings in the age of coronavirus. The CFPB, HUD, and
FHFA are to be applauded for their swift and decisive action.”
Part of the reason the swift action is possible is because
lenders are using existing programs as stopgap solutions, such as disaster
relief. However, lenders and mortgage industry professionals don’t want to rely
on these programs in the longer-term. Currently, they’re working on a more
streamlined assistance program that would help borrowers as long as COVID-19 is
disrupting business and ending paychecks for millions of Americans.
Heading this effort is Ed DeMarco, president of the Housing
Policy Council and the former head of the FHFA.
“We know many people have had their income disrupted and, as
leaders in the industry, we all hope this disruption is temporary as we fight
off the virus,” DeMarco says. “We want to give borrowers, regardless of what
type of loan, access to a simple, temporary payment deferment to offer some
assistance during this challenging time.”
The group is currently coordinating with government agencies,
but DeMarco believes they can have the plan in place quickly. They’re also
working on a solution to help people with pending mortgage applications, as
workplace disruptions can rattle the loan process.
Although lenders are overwhelmed with work, DeMarco urges
homeowners and buyers alike to not walk away from borrowing.
“It is critical that we continue to process new mortgage
applications, including refinance, in the face of the low-rate environment,”
DeMarco says. “That itself is an economic stimulus.”
There are COVID-19 cases in every state in the U.S., but some
are reporting higher rates of infection than others. New York leads the
country, with approximately 4,597 reported cases, according to the Centers for
Disease Control and Prevention. Next in line are Washington and California;
each have 1,187 and 652 reported cases, respectively.
This number is expected to grow, which means the increased
potential of job loss and other financial burdens that can make it impossible
for some folks to keep up with their mortgage.
The measures put in place by government-backed loans and GSEs
protect about 65 percent of mortgages in the U.S., according to a recent report by the Urban
Institute. Protecting homeowners who aren’t covered by these measures
is left to individual jurisdictions.
Here is a list of what some states are doing to help homeowners,
this list will be updated as new information comes in.
New York Gov. Andrew Cuomo offered assistance to homeowners by
announcing that he will delay mortgage payments for 90 days. Eligible
homeowners include those who lose their job due to the coronavirus.
“This is a real-life benefit,” Cuomo said at a press conference
on March 19. “People are under tremendous economic pressure. Making a mortgage
payment can be one of the number one stressors. Eliminating that stressor for
90 days, I think, will go a long way.”
Participation in the program will not negatively impact credit
California Gov. Gavin Newsom signed an executive order on March
16 to stop evictions and foreclosures for people who are affected by COVID-19
through May 31, unless otherwise directed.
The Texas Department of Housing and Community Affairs (TDHCA)
will suspend evictions and foreclosures for residents impacted by the
coronavirus who are part of any of the programs the TDHCA oversees, including:
Homebuyer Assistance Program, Bootstrap Loan Program, and the Homebuyer
Rehabilitation Assistance Program.
“Our current practice is to take each on a case-by-case basis,”
says Kristina Tirloni, senior communications advisor for TDHCA. “Forbearance,
the suspension of all or a part of the mortgage payment for a specified period
of months, is likely the predominant means of mortgage aid that will be
provided to our borrowers and perhaps all borrowers in need of assistance.”
Homeowners who took part in TDHCA’s Texas Homebuyer Programs (My
First Texas Home or My Choice Texas Home) are encouraged to contact their mortgage
lender if they are experiencing challenges to pay their mortgage. TDHCA does
not have any oversight for mortgage loans taken out through those programs.
North Carolina is postponing all court cases (including
foreclosures cases) for at least 30 days as a way to decrease courthouse
traffic and reduce exposure to the virus.
Massachusetts proposes legislation to stop eviction and
Virginia officials urge mortgage holders and servicers to offer
hardship forbearances and refrain from credit reporting.
Kansas halts foreclosures and evictions through May 1, 2020.
Louisiana halts foreclosures and evictions.
Maryland courts stay foreclosure and eviction actions
New Hampshire suspends foreclosures and evictions indefinitely.
Pennsylvania courts pause foreclosures and evictions through
Indiana suspends the initiation of foreclosures and evictions
through May 5.
New Jersey halts evictions and foreclosures which would last no
longer than two months after the state of emergency (which Governor Phil Murphy
put in place due to the coronavirus) ends.
Because new mortgage rules around the coronavirus change so
quickly, it’s important for borrowers to communicate with their servicer about
the latest options available to them, says Jennifer Keys, senior vice
president of compliance at Covius.
So far, Keys says, the government has done a good job
implementing existing programs, which has helped expedite assistance. The first
line of defense for homeowners is halting foreclosure proceedings.
“I think the foreclosure halts are more immediate. That gives
the most immediate relief to the most urgent needs that need to be addressed,”
Keys says. “The forbearance lasts for about a year and then, after that, you
have loan modification which is the next step and that changes the loan
permanently,” Keys says.
Keep in mind, that the deferred amount will have to be repaid,
in most cases, so be sure you work with your lender to come up with a plan that
makes sense for you. People facing unemployment are likely eligible for
benefits, so reach out to your state unemployment office if you’re in need of
Closing on a house marks the beginning of a new lifestyle for
homeowners since ownership of the home is transferred. Here’s what to expect at
the closing and how long it takes to close on a house.
What are closing costs?
Closing costs are the fees and expenses that the homeowner must
pay before he/she becomes the legal owner of the house, condo or townhome.
Expect to pay 2 percent to 5 percent of the mortgage loan in closing costs.
Fees vary in each state and some have additional ones.
The closing costs include setting up escrow accounts to paying
for a title search appraisal and checking a consumer’s credit history. Whether
you are purchasing a new home or refinancing a mortgage to receive a home
equity line of credit or home equity loan, closing costs need to be paid.
a software company that processes mortgage applications, reports that the
average time it takes for homebuyers to close on their home purchase was 47
days as of October 2019.
Closing on a house can be a lengthy process and planning is
crucial, especially if you are currently renting a home or an apartment and
your lease is almost up.
A closing usually takes 30 to 60 days, but a number of factors
can change this timeline. Renters should aim to close toward the middle to end
of the month, says Jared Maxwell, vice president of consumer direct lending at
Embrace Home Loans in Middletown, Rhode Island.
“This will help prevent paying your final month of rent for an
apartment or house you aren’t using,” he says.
On the flip side, the closing date would also depend on how
quickly the seller can move out of the home, so the buyer may be in a hurry, but
the seller may have a different timetable.
A rule of thumb is to expect at least 30 days to closing because
it gives the buyer and the lender an opportunity to complete all the paperwork.
“There are certainly instances where lenders can close in as fast
as 15 to 20 days, but this assumes documents are returned quickly and there are
no unforeseen hurdles that occur with the condition of the home or the title
report,” Maxwell says.
Applying for a loan preapproval before you start shopping for a
home can help people close sooner since a few of the verification processes
will be completed ahead of time, says John Schleck, a senior vice president in
consumer lending at Bank of America in Charlotte, N.C.
At closing, your participation will involve a couple of steps:
Funds are usually a cashier’s check made out to the escrow
company or a wire transfer funds to the banking institution.
Be sure to find out what type of identification is required.
Usually, only one type of identification is needed, though some companies
require two. Government-issued identification, such as driver’s licenses and
passports, are normally accepted.
Closing costs are typically
thousands of dollars and homeowners should plan on paying 2 percent to 5
percent of the mortgage loan. The costs can be rolled into the mortgage amount
(known as a no-closing cost
mortgage) or paid up front, and some components of closing costs can
These costs also vary by state. Some states and localities
charge mortgage and transfer taxes that increase the costs in that state,
Maxwell says. Lenders are required to provide an estimate of your closing costs
early in the loan process and closer to the closing date an amount you can
expect to bring to closing.
For example, the sale of a $200,000 home in Illinois means the
buyers will pay title fees that begin at $1,700, escrow fees at $1,500, survey
fees of $400 and attorney fees that average $400, says Neil Narut, senior
underwriting counsel for Proper Title, a Chicago-based title company. There are
many more items on top of that.
Homeowners can prepare for a closing to help speed the process.
Buyers should obtain beforehand all the documents that the loan officer
will request, Maxwell says.
“You should refrain from making any large undocumented deposits
such as cash deposits and opening any new credit card accounts,” he says.
Buyers will want to make sure nothing in their finances changes
before the closing day because the lender does make last-minute checks of vital
Closing procedures vary from state to state and even county to
county, but the following parties will generally be present at the closing or
The closing agent conducts the settlement meeting and makes sure
that all documents are signed and recorded and that closing fees and escrow
payments are paid and properly distributed.
Several things occur on the day you close. Prepare to spend a
few hours on this process.
The buyer will conduct a walkthrough with their realtor to
confirm the home is in the condition promised. Plan to obtain a certified check
from the bank that is made out to the title company for the closing costs and
the remainder of your down payment, Maxwell says.
There are three main documents to sign during closing, including
a deed of trust or mortgage, which is a document that puts a lien on your
property as collateral for your loan, Schleck says. The second document is the
promissory note, a legal agreement to pay the lender, including when you will
make your payments and where you will send them. The last one is the closing
disclosure, an itemized list of your final credits and charges
“The sellers will sign a few documents and you will receive the
keys to your new home,” Maxwell says.
Many factors can cause delays to the closing. One common item
that can cause a delay is if there is a repair that the appraiser believes
needs to be addressed, Maxwell says.
Another factor is a lien on the title that the seller is unaware
of that must be satisfied before the closing can take place. A homeowner can
cause the delay if he/she lacks some of the documents that the lender needs to
conduct the closing.
Delays beyond three months are rare, says Mike Tassone,
co-founder and COO of Own Up, a Boston-based mortgage company. The causes
include finding issues with obtaining a clean title to the home such as tax
liens, and previous owners unreleased from title as well as negotiations
related to appraisals that come in below the purchase price.
“Throughout the mortgage process, it’s important to complete
applications accurately and upload documents in a timely manner to ensure things
move smoothly,” Schleck says. “Depending on market activity, there may be some
delays as third-party providers such as appraisers tend to get very busy during
peak homebuying season.”
You will receive the following key documents:
The loan estimate. This document
contains important information about your loan, including terms, interest rate
and closing costs. Make sure all the information is correct, including the
spelling of your name.
The closing disclosure. Like the loan estimate, the
closing disclosure outlines details of your mortgage. You should receive this
form at least three days before closing. This window of time gives you a chance
to compare what’s on the loan estimate to the closing disclosure.
The initial escrow statement. This form contains
any payments the lender will pay from your escrow account during the first year
of your mortgage. These charges include taxes and insurance.
Mortgage note. This document states your promise to repay the mortgage.
It indicates the amount and terms of the loan and what the lender can do if you
fail to make payments.
Mortgage or deed of trust. This document
secures the note and gives your lender a claim against the home if you fail to
live up to the terms of the mortgage note.
Certificate of occupancy. If you are buying a newly
constructed house, you need this legal document to move in.
Once you’ve reviewed and signed all closing documents, the house
keys are yours and you will officially be a new homeowner.
The central bank of the U.S. – also known as the Fed –
is charged by Congress with maintaining economic and financial stability. Mainly, it tries to keep the economy afloat by raising or
lowering the cost of borrowing money, and its actions have a great deal of
influence on your wallet.
Officials on the Fed’s rate-setting Federal Open
Market Committee (FOMC) typically meet eight times a year. The Fed looks at a
broad range of economic indicators, but most notably, it pays attention to
employment and inflation data. The Fed was scheduled to have its next
meeting this week on March 17-18. The meeting will no longer happen coming off
the Fed’s emergency cut.
The logic goes like this: When the economy slows
– or merely even looks like it could – the Fed may choose to lower interest rates. This
action incentivizes businesses to invest and hire more, and it encourages
consumers to spend more freely, helping to propel growth. On the contrary, when
the economy looks like it may be growing too fast, the Fed may decide to hike
rates, causing employers and consumers to tap the brakes on their financial
“When the Fed raises or reduces the cost of money, it
affects interest rates across the board,” says Greg McBride, CFA, Bankrate
chief financial analyst. “One way or another, it’s going to impact savers and
Even if you’ve only been tangentially following the
Fed, you’ve probably noticed that it’s been a bumpy past few months. Officials
cut interest rates three times in 2019, months after signaling to investors
that they’d intended to hike at least two more times. U.S. central bankers now
say they’re comfortable with waiting on the sidelines over the
next 12 months, as they wait for
evidence on just how much the three reductions impacted the economy.
Still, policy isn’t set in stone, and there’s a lot
that could happen over the next year that might yank the Fed in a different
direction. Here are five ways that you can expect the Fed to impact your
Most credit cards have variable interest rates, and
they’re tied to the prime
rate, or the rate that banks charge to
their preferred customers with good credit. But the prime rate is based off of
the Fed’s key benchmark policy tool: the federal funds rate.
In other words, when the Fed lowers or raises its
benchmark interest rate, the prime rate typically falls or rises with it.
“What the Federal Reserve does normally affects
short-term interest rates, so that affects the rates that people pay on credit
cards,” says Gus Faucher, chief economist at PNC Financial Services Group.
Leading up to the July rate cut, the prime rate was
5.50 percent, 3 percentage points higher than the top end of the fed funds
rate’s target range of between 2.25 percent and 2.5 percent. It typically stays
at that level — even as the Fed cuts rates.
By December, after the Fed’s three cuts were already
enacted, the prime rate had fallen by 75 basis points. That’s how much the Fed
reduced rates in total.
But credit card borrowers will be hard pressed to find
an interest rate that’s actually that low. After the Fed’s three cuts, average credit
card rates only fell slightly, to 17.36 percent from 17.8 percent, according to
Bankrate data that tracked rate changes between Sept. 4 and Dec. 18. In
reality, credit card rates are much higher because companies charge the prime
rate plus another margin that they determine themselves.
If you’re a saver, you’ll likely have the opposite
reaction of a credit card borrower. Savers benefit from rate hikes and take a
hit when the Fed decides to cut them.
That’s because banks typically choose to lower
the annual percentage yields (APYs) that they offer on their consumer products — such as
savings accounts — when the Fed cuts interest rates. For example, banks in June
2019 lowered their yields in anticipation of a rate cut.
But when and by how much banks choose to lower yields
after a rate cut depends on those broader conditions, as well as competition in
the space, McBride says. It’s also worth remembering that most high-yield
savings accounts on the market have annual returns that outpace inflation.
“If the Fed cuts rates, yields will fall, but you’re
still going to be far ahead from where you were a few years ago,” McBride says.
“Even if they unwind one of the nine rate hikes that they’ve made since 2015,
the top-yielding accounts are still going to be paying a rate above inflation.”
Yields on certificates of deposit (CD) generally fall when the Fed cuts rates as well, but
broader macroeconomic conditions also have an influence on them, such as the
10-year Treasury yield.
But individuals should focus on the inflation-adjusted
rate of return on CDs, says Casey Mervine, vice president and a senior
financial consultant at Charles Schwab. In the late 1970s, for instance, yields
on CDs were in the double digits; inflation, however, was as well. That means
consumers’ actual earnings were much lower, due to the erosion of their
If you’re worried about a Fed rate cut impacting your
returns, consider locking down a CD now.
“Sometimes people start lowering their rates in anticipation
of a cut,” says Katie Miller, senior vice president of savings products at Navy
Federal Credit Union. “That’s why I say, if you see some good CD rates, take
Mortgage rates aren’t likely going to respond quickly
to a Fed rate adjustment. Interest rates on home loans are more closely tied to
the 10-year Treasury yield, which serves as a benchmark to the 30-year fixed
That’s evident when you look into the past. Each time
the Fed has adjusted rates, mortgage rates haven’t always responded in
parallel. For example, the Fed hiked rates four times in 2018, but mortgage rates continued to edge downward in late December.
But even though the Fed has little direct control over
mortgage rates, both end up being influenced by similar market forces, McBride
“While not directly related to a Fed cut, the two are
sort of a reflection of the same concern: the expectation that the economy is
going to slow,” McBride says.
Right now, that’s been the fear about both the
domestic and global economy. U.S. hiring slowed in 2019, while manufacturing is
outright contracting. Growth around the world is also decelerating, and it’s
prompting many other central banks around the world to start cutting rates as
It’s highly likely that you’ll start to see those
long-term rates slip lower in tandem with short-term borrowing costs, Miller
“It’s long-term expectations that tend to dictate
where mortgage rates go more than short-term, but even long-term expectations
are getting a little bit lower here,” according to Miller. “You’ll probably see
mortgage rates come down as well. The more that comes down, the better off you
are, especially if you’ve gotten you a mortgage in the last couple of years.”
That means refinancing could be a smart option
for your pocketbook. A reduction in even just a quarter of a percentage point
could potentially shave off a couple hundred dollars from your monthly
“Mortgage debt tends not to be high cost; it’s just
high interest because of the value of the actual mortgage itself,” Miller says,
“which is why small changes in rates can make a big difference.”
However, if you have a mortgage with a variable rate
or a home equity line of credit –
also known as a HELOC – you’ll feel more influence from the Fed. Interest rates
on HELOCs are often pegged to the prime rate, meaning those rates will fall if
the Fed does indeed lower borrowing costs.
Modest Fed moves, however, likely aren’t going to
steer those rates in a drastic direction either, McBride says.
If you’re thinking about buying a car, you might see
slight relief on your auto loan rate. Even though the fed funds rate is a
short-term rate, auto loans are still often tied to the prime rate.
It might, however, be a modest impact. The average
rate on a five-year new car loan is 4.56 percent, down from 4.72 before the Fed
cut rates in July, according to Bankrate data.
When the Fed cuts rates, it’s easy to think of it as
discouraging savings, McBride says. “It’s reducing the price of money. It
incentivizes borrowing and dis-incentivizes savings. Essentially, it gets money
out of bank accounts and into the economy.”
On the other hand, a Fed rate hike discourages
borrowing, as the cost of money is now more expensive.
But that doesn’t mean it’s a bad time to save.
Building an emergency savings cushion,
and saving in general, is a prudent financial step.
“Good savings habits are important independent of the
interest-rate environment,” Miller says. “Your transmission in your car, if it
breaks, it doesn’t realize if rates are low.”
Stay ahead of any Fed rate moves by keeping an eye on
your bank’s APY. Regularly checking your bank statement can also help you
determine whether you’re earning a rate that’s competitive with
other options on the market.
If the Fed looks like it’s going to hike rates, paying
off high-cost debt ahead of time could create some breathing room in your
budget before a Fed rate hike. Use Bankrate’s tools to find the best auto
loan or mortgage for you.
rates remain low by historical standards, but volatility in the market means
rates are fluctuating significantly. So prospective borrowers looking for a
home loan need to shop carefully for the best rate, since it could change
markedly in a short period, not unlike airline tickets back when folks were
also need to expect delays, as bottlenecks in the process are slowing down the
ability of lenders – as well as borrowers themselves – to close loans as fast
as they usually do.
weeks ago we saw rates really drop, and things were already busy before that,”
says Joel Kahn, associate vice president of economic and industry forecasting
at the Mortgage Bankers Association.
lenders are continuing to feel the squeeze, as low and volatile rates draw tons
of would-be buyers and refinancers to the market. That’s creating issues with
at lenders was already tight,” says Kahn. And with the influx of new customers,
lenders are struggling to keep up. “It’s an issue of finding the staff they
need, onboarding them, and it’s a long and technical process to get new
employees up to speed.”
is so brisk, some lenders are even raising
their mortgage rates in order to discourage new business,
despite the Federal Reserve lowering its lending rates to zero percent. In
addition, lenders have also been pulling
back because of disruptions in the mortgage-backed securities market where they
buy and sell the bonds that back mortgages.
It’s not just lenders slowing the process
all this, the coronavirus and the government’s responses to it are crimping the
ability of all sides of the market to close loans. The closure of many
municipal and county offices across the nation is slowing or altogether
stopping mortgage loans from being closed, creating bottlenecks.
if an office is open, it may have few people on site, says Kahn.
“A lot of
closing has traditionally been done in person, so the lack of personnel is
slowing the process,” says Kahn. He suggests that remote online notarization,
already pushed by industry for some time, may be able to pick up some slack
here and mitigate the bottleneck somewhat.
may also be slowing the process, too, through no fault of their own. In
response to the coronavirus, many employers have employees working from home,
may temporarily be understaffed or otherwise unable to verify an employee’s
income. So, many borrowers may not receive a timely verification, which is
needed in the underwriting process.
the process, the Federal Housing Finance Agency (FHFA) is allowing lenders to
obtain an email verification of the borrower’s employment, a year-to-date pay stub
or a bank statement with a recent payroll deposit, in lieu of verbal
can be another bottleneck, Kahn says, because there was already a shortage of
them over the last year before rates plummeted in 2020 and spiked an interest in
surrounding the coronavirus are also hurting the appraisal process.
might be concerned about letting an appraiser into the house,” says Kahn. “And
some appraisers are reluctant to go into a house without knowing the situation
to deal with some of the problems caused by the appraisal process, the FHFA has
instructed Fannie Mae and Freddie Mac to accept “appraisal alternatives” to
inspecting the interior of a home, though without specifying what those were.
adds up to a longer time to close for borrowers. Lenders are extending their
rate locks from 30 days or 60 days out to as much as 90 days. In some cases,
borrowers might be asking for the extended lock due to the ability to obtain
necessary information, for example, but in other cases lenders just don’t have
the capacity to close more quickly.
What can borrowers do?
bump in refinances has been a silver lining, but it’s a challenging time all
the way around,” says Kahn.
challenges mean borrowers need to set their expectations correctly when they
enter the mortgage process. They shouldn’t expect to close on the loan as
quickly as they might have in years past, as multiple factors – many of which
are beyond their control – combine to slow the process.
course, this slowdown may cause
further backups in the entire market, too. As the closing process
comes to a crawl, it can have knock-on effects down the line, because home
sellers are often homebuyers at the same time. Sellers who are unable to close
in a timely fashion on a mortgage may have to defer the sale of their own home,
for example, causing a domino effect.
these constraints, borrowers need to approach the process with some patience,
which is perhaps not the easiest thing to do when you spot a mortgage rate that
could save you tens of thousands of dollars over the life of your loan and you
want to secure it.
buyers can use any slowness in the market as time to shop around for
the best mortgage rates, potentially scoring an even better deal by
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homebuyers have the advantage of shopping in a low mortgage-rate environment,
as current mortgage rates have
fallen to around 3.73 percent.
But not everyone qualifies for the lowest rates available, or can even qualify
at all for a mortgage or a refinance.
score, down payment and even comparison shopping are all important factors that
play into the rate you receive. Here’s a breakdown of why these things can
prevent you from scoring the lowest rate available and what you can do to
1. Improve your credit score
score is one way lenders try to predict whether borrowers will pay their loan
on time and be able to afford the mortgage payments. Borrowers with excellent
credit scores are rewarded
with the best rates because they’re perceived to be less likely
to default or make late payments. Lenders hedge their risks by increasing rates
for borrowers with lower credit scores.
To get an
idea of the interest rate you might qualify for, start by checking your FICO
score, which is the score lenders use that is based on your credit report.
Consumers are entitled to one free credit report per year from each of the
three major credit reporting agencies: Experian, TransUnion and Equifax. It
usually costs extra to get your FICO score, though many credit card issuers
provide it for free.
example, if you maintain a balance on your credit cards, it will appear on your
report as ‘revolving credit utilization;’ lowering that amount will raise your
credit score,” says Judith Corprew, executive vice president of chief
compliance and risk at Patriot Bank. “Also consider late payments. Remembering
to pay bills on time and in full will help your credit score (not to mention
reduce late fees).”
inquiries on your credit report can also lower your FICO score. Hard inquiries
include loan and credit card applications, and might indicate that you need
money or are at risk of overextending yourself.
apply for credit unless you need it. And definitely don’t apply in the six
months preceding your loan application,” says Adrian Nazari, founder and CEO at
Credit Sesame. “However, you can shop for mortgage rates without worrying about
multiple inquiries because the only way to compare loan offers is to apply with
more than one lender.”
if you see an error on your credit report, you can dispute it. Clearing up
mistakes will also help you improve your score. Credit scores are updated every
30 to 45 days, according to TransUnion, and credit bureaus usually update your
file as soon as they get new information from creditors. So, if you pay off
debts and avoid opening new lines of credit, you might see your score increase
in as little as a month.
2. Make a bigger down payment (or look for low down payment
Bigger down payments can often help borrowers
secure a lower interest rate. The reason is that the loan-to-value ratio, or
LTV, is lower with larger down payments, which reduces how much the lender
would lose in case of default.
another instance of risk-based pricing. Lenders reward low-risk customers with
lower interest rates.
larger the down payment you put forth, the better the odds of lowering your
interest rate and monthly payment,” says Chris de la Motte, co-founder and
president at Simplist. “If you’re not quite at your target number yet, there
are plenty of ways to trim additional expenses — and they can really add up.
Whether it’s pausing the gym membership to run outside and participate free
local classes, or forgoing the daily office cafeteria run in favor of a little
meal prep action, little things can make a big difference. You’ll be there in
said, there are plenty of loans available at low interest rates with as little
as a 3 percent down payment. Look into FHA loans and
programs through banks that specialize in low down payments. And if you want to refinance your
current mortgage, no down payment is generally needed as long as you
have sufficient equity in the home.
3. Compare offers from multiple lenders
shows that shopping around for a mortgage can save consumers hundreds or even
thousands of dollars. According to a 2018 report from Freddie Mac, borrowers
can save “an average of $1,500 over the life of the loan by getting one
additional rate quote and an average of about $3,000 for five quotes.”
Bankrate’s mortgage rate
tables are updated regularly, so you can start by doing your
research online. Be sure to shop at your bank and even online lenders.
that the difference between 8 basis points can save you $140 per month. A
$300,000 mortgage with a 4.5 percent rate will cost $1,520 in principal and
interest per month compared with a 3.7 percent interest which comes to $1,380
per month. That difference adds up over time, so it’s worth taking the time to
improve your score, save for a bigger down payment and shop around for a better
credit is less than stellar, it pays even more to shop. Some lenders will
welcome your business with competitive rates while others may not. Mortgage
brokers are another good way to find a lender if your situation is out of the
housing market is about to enter the spring selling season, and mortgage rates are near record lows.
With rates slipping over the past year, and especially over the past few
months, it may be a fine time to lock in your
mortgage rate and forget about getting the rock-bottom rate.
potential buyers sitting on the sidelines waiting for a better rate may want to
reconsider. Their buying power has seldom been higher, especially if you
compare where rates are to recent economic booms in 1999-2000 and 2006-2007.
The all-time low for rates
rates on 30-year mortgages are now at 3.7 percent, according to Bankrate’s
weekly survey of the nation’s largest lenders. Would-be borrowers
might consider whether rates can fall much further. The all-time low for the
benchmark 30-year is 3.5 percent, achieved on Dec. 5, 2012, according to
many economists expect the Federal Reserve to keep interest
rates steady, holding off one key source of the downward pressure on
rates. However, potential short-term concerns that may hit global growth, such as the
coronavirus, may push rates lower.
regardless of where rates go from here, they’re already only a smidge higher
than the lowest we’ve seen for some time.
substantial drop in mortgage rates compared to last year has put more buying
power behind would-be buyers, though the continued appreciation of home prices
in many markets does dilute the savings,” says Greg McBride, CFA, Bankrate
chief financial analyst.
Buying power remains high
decline in rates, consumers’ buying power continues to increase, and the
ability to lock in long-term financing may prove too attractive for many to
resist, even with higher home prices.
$250,000 at 3.5 percent now costs $144 less per month than at 4.5 percent one
year ago, but 5 percent home price appreciation means borrowing $262,500 now,”
McBride says. “The payment is still $88 per month lower at today’s rates than
the smaller loan at last year’s higher rates.”
are already well below what occurred in recent economic booms. In 2000, rates
on 30-year mortgages topped out at 8.69 percent on May 17, 2000, according to
Bankrate data. In the last boom, rates topped at 6.93 percent on June 28, 2006.
So historically, consumers are already seeing incredibly low rates.
decline in rates has drastically affected the ability to afford a house at a
given price. For an income of $100,000 and a lender that requires mortgage
payments to be no more than 28 percent of your income, here’s the buying power
and the interest paid over the life of the loan.
3.64 percent (2020)
6.93 percent (2006)
8.69 percent (2000)
income, you’ll be able to afford a mortgage of $510,692, according to Bankrate’s maximum mortgage calculator. Factor
in a 20 percent down payment, and you could buy a property valued at $638,365.
Interest payments total $329,307 over the life of the loan.
2006 boom, when 30-year rates hit 6.93 percent, that same salary would have
afforded a mortgage of $353,210 and a property of $441,512, assuming the same
20 percent down payment. Interest payments would come to $486,789 over the life
of the loan.
2000 boom, with rates maxing 8.69 percent, that $100,000 salary could get you a
mortgage of $298,220 and a property of $372,775. Total interest payments would
come to $541,779.
the decline in rates, consumers’ buying power has been rising substantially and
the amount going to interest expenses has been declining markedly. And despite
much higher property values, the amount of interest actually declines sharply.
Focus on price, then find a great rate
course, consumers shouldn’t buy a house just because rates are good. Rather,
they should find a house that they want to own, negotiate hard for the price
they want and only then use the market to lock in the rate they want.
you lock in a rate now and rates fall further during a recession, you may be
able to refinance at that time, taking advantage of the even more favorable
homeowners are leaving a ton of money on the table, as mortgage rates plummet.
rates are now hovering near all-time lows, causing a spike in refinancing in
January. Yet while many Americans are rushing to cash in, reducing their
monthly payments and the amount of interest they’ll pay over the life of the
loan, millions of others are paying above-market rates.
mortgage now runs about 3.7 percent nationwide, but the average borrower is
paying 4.41 percent, a new survey
from Bankrate reveals. That difference leaves a potentially huge
opportunity for homeowners to refinance and save thousands on their loan.
astounding, however, is that about 27 percent of borrowers don’t know what
their mortgage rate is, according to the Bankrate survey. Overall, about 7 in
10 borrowers are paying above the current average interest rate or don’t know
what they’re paying.
7.8 million homeowners have the opportunity to refinance and save money,
according to data from Black Knight, a mortgage analytics company. Figure how
how much you could save with this mortgage
The savings opportunity is huge
potential to refinance and save is significant, especially if you own a home in
one of the larger metro areas, where home prices are typically much higher.
PAID @ 4.41%
PAID @ 3.71%
New York City
potential savings on a maximum conforming FHA loan for the most expensive
cities surpasses $100,000.
for FHA loans in highest-priced cities, including New York, Los Angeles and San
Francisco, is $765,600. Homebuyers in these locales would save more than
$111,000 over the life of a 30-year loan if they moved from 4.41 percent to
3.71 percent, the current average rate.
Chicago, the FHA limit is about that of the highest tier, at $368,000.
Correspondingly, the interest savings of moving to the current average interest
rate is about half, at $53,659.
major metros, such as Houston and Atlanta, had comparable FHA loan limits as
Chicago, and offered similar loan savings, at $48,374 and $58,521,
the Poughkeepsie-Newburgh-Middletown area saw its FHA loan limit slashed in
half in 2020. A new 30-year loan at current average rates would save nearly
Find a great mortgage rate
mortgage rates at near-historic lows, you’ll want to run the numbers to see if
it makes sense for you to refinance into a cheaper option. But if rates
continue to slide, it’s going to be harder and harder to justify staying in
your higher-priced mortgage.
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rates have sunk to near record lows in early 2020, as a series of interest rate
cuts from the Federal Reserve and recent jitters in the bond market have made
borrowing more attractive. Our expert has some timely advice on what this means
for homeowners and would-be borrowers.
data show that the current average 30-year mortgage has fallen to around 3.7
percent, so it seems like an ideal time for new borrowers as well as those
looking to refinance.
the average borrower paying more than 4.4 percent, according to a
recent Bankrate survey, it looks like many homeowners can save
thousands by refinancing. And of course, new borrowers may be able to lock in a
rate that’s among the lowest ever offered.
with Greg McBride, CFA, Bankrate chief financial analyst, to understand more
about what’s going on in the mortgage market, where rates are headed and what
borrowers can do.
Wow, this mortgage market has really taken off when rates dropped.
What’s going on?
McBride: Nothing spurs mortgages, and refinancing activity in
particular, like low rates. The coronavirus scare has prompted a flight to
quality among investors that has brought bond yields and mortgage rates to the
lowest levels in more than three years. But the surge in refinancing can be
fleeting – a rebound in rates back to levels where we started the year would
temper the application flow real quick.
So the mortgage market is shaping up for a good 2020?
McBride: Things are lined up to be a great year. The surprise plunge in
rates to start the year has spurred a surge in refinancing activity that wasn’t
expected and with unemployment at 50-year lows, there are plenty of would-be
home buyers in the market. Both purchase and refinance originations will be
strong this year – oftentimes it’s only one or the other.
Housing supply seems pretty tight in many markets right now – will that
McBride: The lack of supply means a low ceiling for the housing market
and by extension, the purchase mortgage market. Fortunately, refinancing has
started off 2020 with a bang – much more than expected – so it’s still a good
time in the mortgage market.
And what are the best moves for homeowners to make this year?
McBride: Homeowners would be wise to evaluate whether or not they’re
candidates for refinancing. Check your credit reports, fix any errors, and pull
together your bank statements, paystubs, tax returns, and documents needed so
that you’re ready to roll. I’d do that now so that you can take advantage of
low rates. Procrastinating runs the risk that the opportunity passes you by with
a modest rebound in rates, or puts you at the back of the line if rates drop
further, refinancing applications keep growing, and only then are you
scrambling to pull things together.
What about potential borrowers?
McBride: Would-be homebuyers should take the steps necessary to improve
their credit like fixing errors and paying down debt, but also boosting savings
and positioning yourself to put your best foot forward when you are ready to
apply for a mortgage. And use some of the online calculators to figure out how much
house you can afford and what the costs of a mortgage and
homeownership mean to your monthly budget. Do that before you start home
So rates are low and credit is available – are we in a “goldilocks
moment” for homebuyers?
McBride: A “goldilocks moment” is a good way to put it, at least from
the standpoint of qualifying for a mortgage and getting a low rate. Not so much
from the actual home purchase standpoint, given the limited inventory within
affordable price ranges in many markets. But low unemployment, increasing
household income, and really low mortgage rates are definitely a great backdrop
for those looking for a mortgage to buy a home.
Anything else borrowers should focus on?
McBride: Don’t bite off more than you can chew by buying a house that
is only affordable if your income and employability never decline. We will get
an economic downturn at some point – I don’t know when, but we will – and you
want to make sure you can still afford the house if your income declines, or
you go through a period where your two-income household is a one-income
cannot overstate the importance of savings – not just for the down payment and
closing costs, but for your emergency fund and the ability to continue saving
for emergencies and retirement even after you buy the home. Leave yourself some
margin of safety. Being house poor is no place to be.
Federal Reserve cutting interest rates to near-zero, some consumers may have
gotten the idea that mortgage rates are heading there, too. But that’s just not
the case, though mortgage rates remain near historic lows, making a new
mortgage or refinancing attractive for many.
response to the coronavirus, the Fed cut rates over the weekend, dropping the fed
funds rate one full percentage point to a range of 0-0.25
percent, the largest emergency reduction in the bank’s more than 100 years of
existence. Investors’ expectations of a rate cut as well as the actual cut
helped drive the 10-year Treasury note below 1 percent. The 10-year note is
key, because it’s a benchmark for 30-year mortgage rates, and often the two
move in similar directions.
think of the 30-year mortgage rate as a combination of the 10-year Treasury
rate plus an additional markup called a spread. That spread makes it worthwhile
for the bank to lend the money, covering the bank’s operating costs and
generating a profit. Without a spread over its own cost of funds, a lender
could not continue to operate and fund loans.
that’s why mortgage rates are consistently well above the rate on the 10-year
note. Typically the spread is
around 1.8 percentage points or so, say experts, but that can and
does change with market conditions. The chart below shows mortgage rates and
the 10-year note over the last year as well as the spread between the two. Note
how the spread has actually risen as the 10-year fell.
has dropped substantially in the last month, while 30-year mortgage rates have
fallen, too, but not as much. The net difference – the spread – has actually
widened in that timeframe, as you can see with the upward climbing line in the
graphic. The spread now sits at 2.54 percent. In periods where the 10-year
notes dips a lot, the spread may climb somewhat.
the Fed lowers rates to zero, putting downward pressure on mortgage rates,
potential borrowers shouldn’t expect their borrowing costs to move toward “free
money” any time soon.
Where are mortgage rates now?
just released its latest weekly average mortgage rates, and the results show
rates have actually climbed over the last couple weeks, even as the 10-year
Treasury yield has mostly fallen. The average 30-year rate in Bankrate’s survey
rose 11 basis points to 3.88 percent this week, after moving up 19 basis points
the previous week.
driving that shift higher when other rates are actually falling? One reason is
that low rates have encouraged a massive wave of refinancing, including cash-out refinances, which are at an
11-year high. That spike in popularity has overwhelmed the ability of banks to
keep up. So in some cases lenders are actually raising their rates to make it
more profitable. Others raise rates to discourage new business because their
underwriters are too busy.
other cases, loan originators are overwhelmed by the volatility of the market
and need to raise their own rates in order to ensure that the loan remains
profitable for them.
now remains a good time for many borrowers – millions, actually – to refinance
their mortgage and reduce their monthly costs, especially as some economic
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