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Posted 05/16/2016

2016 Housing: The Falling Costs Of Owning A Home

Mortgage payments get cheaper, even as the Federal Reserve raises rates

Mortgage Rates Defy Wall Street Experts

How much more will today's mortgage rates drop?

According to Freddie Mac's weekly survey of more than 100 mortgage lenders, the average 30-year fixed-rate mortgage rate dropped 4 basis points (0.04%) last week, reaching an average of 3.57% nationwide.

Mortgage rates are now down close to one-half percentage point from the start of the year.

As mortgage rates have dropped, refinance options have opened for homeowners; there are now more than 7 million homeowners potentially eligible to refinance.

Home buyers face much lower payments as compared to last year.

Home buyers like to ask "How much home can I afford?". Today, the answer is a good one.

Click to see today's rates (Dec 10th, 2016)

Freddie Mac: 30-Year Rates Hit 3.57%

Each week, government agency Freddie Mac polls a group of mortgage banks, asking their "going rate" on a mortgage made to prime borrowers.

"Prime borrowers", as defined by Freddie Mac, are home buyers with verifiable income, a twenty percent down payment, strong credit scores, and who plan to purchase a single-family detached home.

This most recent report shows banks quoting an average 30-year fixed rate mortgage rate of 3.57 percent, with an accompanying discount point charge of 0.5 percent.

Discount points are a one-time closing cost which give access to lower, "discounted" rates. Discount points are typically tax-deductible for purchases and refinances, and can be waived by the borrower, optionally.

At 3.57%, conventional 30-year mortgages loans are their lowest point in three years; and, 15-year fixed-rate mortgage rates and mortgage rates for 5-year ARMs are similarly low.

Freddie Mac reports the average 15-year fixed rate mortgage at 2.81% and the 5-year ARM at 2.78 percent. Both loans require an accompanying average of 0.5 discount points.

Your rate may vary, based on whether you're a "prime borrower"; and whether you're using conventional financing, or choosing from between an FHA loan or a VA loan.

Click to see today's rates (Dec 10th, 2016)

Mortgage Payments Drop With Today's Rates

Mortgage rates aren't one-size-fits-all. The rate you're quoted by a lender will depend on a host of factors, including your credit score, your loan-to-value (LTV), and your loan type.

Conventional loans, for example, tend to carry the highest mortgage rates of all government-backed loan types, followed by FHA loans, then VA and USDA loans.

FHA mortgage rates are currently close to 12.5 basis points (0.125%) lower than rates for a comparable conventional loan; and, VA loans and USDA loans are currently close to 30 basis points (0.30%) lower.

Whether you choose an adjustable-rate mortgage (ARM) or a fixed-rate loan can affect your rate. So can the term of your loan, in years.

Here is how monthly mortgage payments vary based on Freddie Mac's weekly survey, assuming a loan size of $300,000:

  • 5-year ARM : $1,230 per month
  • 15-year fixed : $2,044 per month
  • 30-year fixed : $1,3759 per month

Note that payments on the 5-year ARM program look cheap as compared to the 30-year fixed-rate loan. This doesn't necessarily mean that the 5-year ARM is "better" -- it just means that the 5-year ARM may be better for some.

If you're a home buyer in today's market and you plan to move or refinance within the next six or seven years, the 5-year ARM can be a terrific way to save on your mortgage.

Conversely, if you plan to keep your home for ten years or more and never refinance, the 15-year or 30-year loan may be your better bet.

Click to see today's rates (Dec 10th, 2016)

Refinance Your FHA MIP Away

Current mortgage rates are down, which is doing more than extending buyer purchasing power. It's also giving millions of U.S. households reasons to do a refinance loan.

A refinance is when you use a new mortgage to pay off your old one.

One of the more popular reasons to refinance is to get access to lower mortgage rates and do nothing more.

This type of refinance is called a "rate-and-term" because you're only changing the rate of your loan or changing your loan's term from a 30-year fixed to a 15-year fixed, for example.

There are an estimated 7+ million U.S. households eligible for a rate-and-term refinance at today's mortgage rates. Many will pass on the opportunity, though, citing "closing costs" as a concern.

Did you know: closing costs can be paid by your lender instead of you?

Another reason some homeowners refinance is to pay down credit card debt. This is known as a cash-out refinance.

The cash-out refinance option wasn't readily available earlier this decade because few homeowners had the necessary home equity to get approved. Now, though, with home values eclipsing last decade's peak in many U.S. markets, "debt consolidation" and cash-out loans are possible.

Homeowners often save thousands with a debt consolidation loan and, with credit card balances paid in full, their credit scores can begin to improve, too.

However, it's the third refinance reason that's proving extra popular -- homeowners are refinancing to get rid of their FHA mortgage insurance premium (MIP) payments.

With most FHA loans, MIP payments are "forever"; lasting the life of the loan. This can add tens of thousands of dollars to the long-term cost of owning a home.

With home values up, though, many FHA-backed homeowners now have sufficient home equity to refinance away from their FHA loan and into a conventional loan for which mortgage insurance payments are only required until the home's loan-to-value reaches 80 percent.

In general, if you have an FHA loan and at least 10% equity, a refinance to a conventional loan will make sense.

Your payments may increase in the near-term because conventional interest rates are often higher than FHA ones but, long-term, should your home gain equity, your private mortgage insurance drops off.

That's when savings get huge.

What Are Today's Mortgage Rates?

Freddie Mac reports mortgage rates low, and home values are rising. That makes today an excellent time to purchase or refinance a home.

Get today's live mortgage rates now. Your social security number is not required to get started, and all quotes come with access to your live mortgage credit scores.

Click to see today's rates (Dec 10th, 2016)

The information contained on The Mortgage Reports website is for informational purposes only and is not an advertisement for products offered by Full Beaker. The views and opinions expressed herein are those of the author and do not reflect the policy or position of Full Beaker, its officers, parent, or affiliates.

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2016 Conforming, FHA, & VA Loan Limits

Mortgage loan limits for every U.S. county, as published by Fannie Mae & Freddie Mac, the Federal Housing Administration (FHA), and the Department of Veterans Affairs (VA)