Buying a house and taking out a mortgage is, with little doubt, one of the largest financial decisions in many people’s lives. After all, it is the largest singular expense most families face in a lifetime.
Deciding when to buy, or whether to, and when to refinance, is all part of a lifetime financial plan.
Markets change, individual situations change, as does the US and worldwide financial picture. Thus, it is important to discuss all the possibilities with an experienced professional.
The US, California and more specifically the Valley suffered a major housing market shift several years ago with lenders offering what normally would be elusive loans and larger mortgages to those who really did not qualify. The result is still being felt today with foreclosures and quick sales still in effect.
Mortgage rates, like interest rates, fell and remain quite low today.
“According to Freddie Mac, 30-year mortgage rates are 3.89% on average in September, compared with nearly 5.77% a decade ago,” said Rilian Ball, president of First Capital Group in Visalia. “If you already locked in a mortgage at the ultra-low rates that have prevailed over the past several years, you were very smart.”
Daily, mortgage specialists are asked to predict the future. While this obviously just is not possible, a mortgage broker is trained to follow patterns in hopes of obtaining knowledge for his or her clients.
“Forecasting mortgage rates is as difficult as predicting weather,” Ball said. “In general, seasoned mortgage professionals have an understanding of the various fronts and patterns that create rate changes, but no one really knows what’s going to happen in the future.”
There are several different types of loans available in California including convention loans of 15 or 30 years at a fixed rate, or adjustable rate; federal government loans, also available in 15- or 30-year periods, offered by the Federal Housing Administration, or fixed-rate mortgages offered by the Veterans Administration; and special incentive loans offered to Californians with low (or even “moderate”) incomes through various state and local housing departments, such as the California Housing Finance Agency.
The rate for any type of loan may vary according not only to the type of loan, but loan-to-value ratio as well, Ball said.
Current rates are actually lower than they have been all year, he added.
“The main factors that influence the Fed decision to raise rates are employment and inflation,” Ball said.
“Fortunately, the Federal Reserve has made it very clear that it desires to raise short term interest rates,” he added. “Therefore, it’s easy to predict higher rates in the future.”
Although it does not appear that an immediate rate increase will be too terribly high, further in the future it could be.
“My guess is that rates will initially rise .500 to .750% rather quickly from their current levels once the Fed announces the increase,” Ball said. “Assuming a $200,000 loan, 2016 homeowners could be paying $58 to $88 more a month. Fortunately, it should be a slow and bumpy ride before we see rates back in the 6-8% range that we saw in the early 2000’s. That would be a $258 to $527 monthly increase on the same $200,000 loan.”
The “slow and bumpy ride” takes into account that the US is heading into a presidential election year.
“Typically rates stay steady in election years,” Ball added.
With so much going on in the federal government and around the world, “we’re just in a volitle economy right now,” Ball said.
It is difficult to predict where the economy, interest rates and mortgage rates will go.
Of course, the best time to buy a home is when an individual or family are ready, financially and emotionally. Determining the best mortgage is between the investor and their lender. Do not be afraid to shop around. And remember, while signing a long-term loan, the opportunity to refinance remains a possibility for the future.
Ball offers the following links as good mortgage/housing information sources:
- Freddie Mac Average Interest Rates
- Fannie Mae Consumer Research and Analysis:
- Mortgage News Daily
- First Capital Group Blog