The historically low interest rates, set since the recession, has had a positively high impact for the property and money lender markets. In March 2016, an average rate on a thirty-year mortgage was hovering around 3.57% (lowest on record since 1971).
Benefits of low-interest rates:
Interest rates are usually set low after an economic collapse, mainly because of these advantages:
- It’s very cheap to borrow, which means less expenditure for the consumer while creating more demand for loan markets.
- It also means more money for homeowners if they refinance their home (a lucrative option if struggling with money in a challenging economy).
- Creates more demand for homeowners to move, as well as affordability for first-time buyers – prevents the property market from stagnating.
In 2015 over 366,000 homes were purchased in the USA, which was the first annual sales increase since 2005. In effect, this brought more jobs back to trades like construction and engineering – as future building plans for the year reached over 946,000, the highest since June 2008.
Other benefits of cheaper borrowing:
Cheaper loans have also created more luxury purchases, like the automobile industry. In the first 11 months of 2012, US citizens borrowed over 19.9m car loans, which was worth a staggering total of $388 billion – the benefits to the economy were:
- Higher profits for companies.
- Higher employment (especially those employed for credit transactions – totaling the highest in almost four years)
- A more prosperous and richer economy – higher returns in taxes for the state.
How higher house prices promoted a return to an economic boom:
Rising home prices have consequently made homeowners feel wealthier, which gives them greater willingness to spend.
Rising prices also helped stock markets perform better, from having low-interest rates – especially with S&P 500 and Dow Jones Industrial Average reaching their highest records since the recession, last March.
However, the same data in March did show a significant drop in American consumer confidence.
— The Capitalist (@Capitalist_Site) May 6, 2016
What’s in store for mortgage rates in the future?
As the idea of higher interest rates is becoming more of reality, as we get further into an economic recovery, it is expected for costs of mortgages and borrowing to become more expensive.
Even if you shop now for a mortgage, rates can still vary. It is advisable to purchase a fixed-rate mortgage, so when the rates do go up, your mortgage repayments also don’t go up.
Top tips to finding the best mortgage rates
Watch out for artificial advertised rates:
Always remember mortgages may come with closing costs or additional points – so always check all terms and conditions before agreeing to deal with your chosen lender.
Also, a low credit score or a cash-out loan will mean your interest will increase – ensure your bank is given full details from the beginning so that you can obtain a very accurate quote for your property circumstance.
Don’t get caught out by points
In case you are not aware, this is an interest payment, which is paid upfront to bring down mortgage rates – your price will seem artificially low while giving a boost to closing costs.
However, if you are not in your home for a very long-term duration, then it’s tough to break even with your high upfront costs. So make sure to have forward planned in place, to minimize any costly mistakes.
Check the rate lock expiration.
At the start, you can have the most competitive mortgage rate on the market, but if it expires or your required to pay for an extension, then this will hit your financial situation very hard.
Be very organized for when it comes to the terms of your mortgage and personal finance.
Zero closing Mortgages should dictate the comparisons
The comparisons will entirely depend on the duration you want the loan, but these are available for only 12.5 basis points (0.125%) being added to your mortgage rate – even though payment may rise by $25 – $60 per month, it can reduce up to $4,000 from your closing costs.
Price out mortgage lenders on the same day
As rates may vary, especially between days, then ensure you price out a couple of banks on the same day – ensuring that you are getting the most competitive comparison on the market.
Banks should not dictate your credit score
Make sure to obtain only one credit report, which should be a three-merge consisting of:
Multiple loan applications will bring your credit score down, and may harm chances of getting accepted for a new mortgage or loan.
Choose one mortgage lender, and if you are unlucky to be rejected, then wait six months before reapplying – credit check sites like Experian can help you monitor your credit rating, along with advice for improvement, while not causing any damage to your score.
To round it off
Although the US economy is in a recovery, and the property market did make a rebound – many other areas like the exchange rate, stock market, and other sectors are still struggling, which is still holding us back from a boom.
Some economists even speculate that rates could instead drop again, bringing us back to a new recession.