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What You Need to Know About Mortgage Rates This Week – August 28, 2023

August 29, 2023 by Wendy Doerzbacher

Understanding the dynamics of mortgage rates is crucial in assessing the affordability of a home. These rates aren’t isolated figures; they pivot on a variety of economic and market stimuli, and they can exhibit volatility from one week to another. Let’s delve into the current scenario of mortgage rates and what it signifies for potential and existing homeowners:

Current data indicates that while mortgage rates are elevated, there’s potential for stabilization or a dip later this year if inflation undergoes moderation.¹.
As of August 25, a 30-year fixed mortgage stood at 7.57%. This is a marginal reduction from the prior week, yet it hovers close to a 22-year peak.² ³.
To regulate inflation, the Federal Reserve heightened its primary interest rate by 0.25% in July. A similar action might be on the horizon for September.⁴.
The median value of an existing house in July escalated to $410,200, marking it as the second most elevated record ever. This price indicates an 8.5% increase from the last quarter.
In July, sales of existing homes dipped by 3.3%. This slump was ubiquitous across all major U.S regions when juxtaposed with sales data from the previous year.¹.
The present housing market exudes an aura of competition and tightness, courtesy of the high demand and insufficient supply dynamics.

Decoding the Mortgage Situation: Questions Homeowners Should Ask
How these trends impact you is contingent on your specific objectives and situation. Consider the following:

Duration of Stay: Are you eyeing your home as a prolonged investment? Locking in a fixed-rate mortgage might be judicious as dramatic rate reductions seem improbable soon. Conversely, those seeking short-term flexibility might find adjustable-rate mortgages appealing, though one should brace for potential hikes in rates.
Monthly Payment Affordability: Elevated mortgage rates translate to steeper monthly outflows. It’s essential to reevaluate your financial strategy or explore homes that don’t strain your finances.
Equity Positioning: When considering refinancing, substantial equity can pave the way for qualifying at a competitive rate and trimming closing expenses. This equity can also be leveraged for cash withdrawals to serve diverse needs, including home enhancements or consolidating debt.
Credit Metrics: Your credit rating and the ratio of your debt to income are pivotal in securing a mortgage at an attractive rate. Superior credit scores and minimized debt ratios amplify the prospects of a beneficial contract. Regularly monitor your credit score, and if required, embark on enhancement strategies.

In Conclusion

Despite the current elevated mortgage rates in comparison to past norms, this scenario may not be perpetual. For those contemplating buying or refinancing, acting promptly might be judicious before any further rate surge. However, it’s paramount to undertake thorough research and solicit multiple lender proposals to secure a mortgage tailored to your fiscal requirements and goals.

Sources:

¹: Current Mortgage Rates: August 28, 2023 | Rates Stabilize

²: Current Mortgage Rates for Aug. 25, 2023: An Important Rate Eases

⁴: Mortgage Rate Forecast August 2023 | Bankrate

³: Mortgage Rates Surge to a 22-Year High, but We See a ‘Glimmer of Optimism’ Ahead

: Housing Market Predictions For 2023: When Will Home Prices Be Affordable Again? – Forbes

What Is A Floating Interest Rate?

August 25, 2023 by Wendy Doerzbacher

What Is A Floating Interest Rate? A floating interest rate, also known as a variable interest rate or an adjustable rate, is an interest rate that can change over time. Unlike a fixed interest rate, which remains constant for the entire duration of a loan or investment, a floating interest rate fluctuates periodically based on certain factors or benchmarks.

The advantage of a floating interest rate is that it can offer flexibility. When interest rates are low, borrowers can benefit from reduced interest payments. However, if interest rates rise, the cost of borrowing will also increase.

How Does A Floating Rate Work?

A floating interest rate works by adjusting periodically based on a predetermined formula or benchmark. Here’s a general overview of how a floating rate typically operates:

Selection of a Benchmark: When entering into a loan or investment agreement with a floating rate, a benchmark or reference rate is chosen. Common benchmarks include the prime rate, LIBOR, or a government bond yield. The benchmark serves as a starting point for calculating the interest rate.

Margin or Spread: In addition to the benchmark, a margin or spread is set. The margin remains constant throughout the loan or investment term and is added to the benchmark to determine the final interest rate. For example, if the chosen benchmark is 3% and the margin is 2%, the floating interest rate would be 5%.

Periodic Rate Adjustments: The frequency of rate adjustments is specified in the loan or investment agreement. The interest rate may be adjusted annually, quarterly, monthly, or even daily, depending on the terms. At each adjustment period, the interest rate is recalculated based on the current value of the benchmark.

The Pros And Cons Of Using A Floating Rate Mortgage Loan

Using a floating rate mortgage loan, also known as an adjustable-rate mortgage (ARM), has both advantages and disadvantages. Here are some of the pros and cons to consider:

Pros:

Initial Lower Interest Rate: One of the main advantages of a floating rate mortgage is that it often starts with a lower interest rate compared to a fixed-rate mortgage.

Potential for Future Savings: If interest rates decrease over time, borrowers with a floating rate mortgage can benefit from lower monthly payments.

Flexibility: Floating rate mortgages often provide more flexibility than fixed-rate mortgages. Depending on the terms of the loan, borrowers may have the option to refinance or sell the property without incurring significant prepayment penalties.

Cons:

Uncertainty and Rate Fluctuations: The main disadvantage of a floating rate mortgage is the uncertainty associated with rate fluctuations. The interest rate is subject to periodic adjustments based on market conditions, which means the monthly payment can change over time.

Potential for Higher Costs: If interest rates increase significantly during the loan term, borrowers may end up paying more in interest over the long run compared to a fixed-rate mortgage.

Limited Predictability: Unlike a fixed-rate mortgage, where the monthly payment remains constant throughout the loan term, a floating rate mortgage introduces uncertainty.

Refinancing Risk: If interest rates rise substantially, it may become more challenging to refinance the mortgage or obtain a new loan with favorable terms.

It’s essential for borrowers to carefully evaluate their financial situation, risk tolerance, and future plans before opting for a floating rate mortgage. Assessing the potential impact of rate fluctuations and considering long-term financial goals can help borrowers make an informed decision.

Consulting with a financial advisor or mortgage professional is recommended to fully understand the implications of a floating rate mortgage and determine if it aligns with your needs.

What Do Appraisers Consider When Valuing a House?

August 21, 2023 by Wendy Doerzbacher

What do Appraisers Consider When Valuing a House? Appraisers consider several factors when valuing a house to determine its fair market value. The goal of the appraisal is to provide an unbiased and accurate assessment of the property’s worth.

Here are the key factors appraisers consider:

Location: The location of the property is one of the most critical factors in determining its value. Proximity to amenities such as schools, shopping centers, parks, public transportation, and the overall desirability of the neighborhood can significantly influence the value.

Size and layout: The square footage and layout of the house play a crucial role in its valuation. Larger houses generally have higher values, but the layout and functionality of the space also matter.

Condition: The overall condition of the property, including both the interior and exterior, is essential. Appraisers look for signs of wear and tear, structural issues, and the general maintenance level of the house.

Upgrades and renovations: Recent upgrades and renovations can positively impact the value of a house. Appraisers take into consideration improvements such as kitchen upgrades, bathroom remodels, flooring changes, or any other updates that enhance the property’s appeal and functionality.

Comparable sales (comps): Appraisers use comparable sales data from recently sold properties in the same or similar neighborhoods to establish a benchmark for the subject property’s value. They compare factors like size, age, condition, and location to determine the market value.

Market trends: Appraisers consider the current real estate market conditions. If it’s a seller’s market with high demand and limited supply, the property’s value may be higher, and vice versa.

Age and condition of the property: The age of the house and its overall condition, including the age and condition of the roof, HVAC systems, and major appliances, will be assessed. Newer and well-maintained properties tend to have higher values.

Lot size and landscaping: The size and quality of the lot, as well as the landscaping and curb appeal, can influence the property’s value.

Views and natural features: Properties with attractive views or access to natural features like waterfronts, mountains, or green spaces may have higher values.

Environmental factors: Appraisers also consider any environmental issues or hazards that might affect the property’s value, such as proximity to industrial sites, flood zones, or other potential risks.

It’s important to note that the appraisal process may vary slightly depending on the specific regulations and guidelines in a particular region or country. Appraisers must remain objective and follow professional standards to provide an accurate and impartial valuation of the property.

What You Need to Know About Mortgage Rates This Week – August 28, 2023

What Is A Floating Interest Rate?

What Do Appraisers Consider When Valuing a House?

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