Isn't That Rich Podcast

In our latest discussion, John Streeter, Chief Mortgage Officer, shared some valuable insights into the current state of the mortgage market. With ongoing fluctuations in interest rates and housing inventory, it's more important than ever to stay informed. Here’s what John had to say about the trends and considerations for anyone looking to buy a home or refinance.

Current Mortgage Rates: What to Expect

One of the most frequently asked questions is, "Where are mortgage rates heading?" John explained that mortgage rates remain elevated but have dipped slightly compared to last year. Depending on your loan type and credit score, rates currently range from the mid-6% to mid-7% for 15 to 30-year loans. Government-backed loans, like FHA options, are trending in the mid-6% range, making them an attractive choice for many borrowers.

Understanding FHA, USDA, and VA Loans

John provided a breakdown of the different types of loans available. FHA (Federal Housing Authority) loans require a low down payment and are available to any borrower, making them a popular option. USDA loans cater to moderate to low-income borrowers, while VA loans are exclusively for veterans. Choosing the right loan depends on your financial situation, so John advises consulting with a knowledgeable mortgage lender who can guide you through the process.

Is Now a Good Time to Buy?

Despite the current higher rates, John believes it can still be a great time to buy—if you can find the right home. The biggest challenge right now is the shortage of available inventory. Many homeowners with locked-in low rates, around 3%, are hesitant to sell, which limits the options for potential buyers. However, John points out that rates are not permanent. If you find your ideal home, you can always refinance later when rates potentially drop.

The Impact of Interest Rates on Home Prices

John discussed the indirect relationship between interest rates and home prices. As rates decrease, buyer demand typically increases, which can drive up home prices due to supply and demand dynamics. However, if more spec homes are built, this could help balance supply and demand, potentially stabilizing prices.

Should You Consider an Adjustable Rate Mortgage (ARM)?

John also touched on Adjustable Rate Mortgages (ARMs), which offer a flexible interest rate that’s typically lower than a fixed-rate mortgage for the first few years. However, this option comes with the risk of rate increases later. John suggests that if you can secure an ARM at least 1% lower than a fixed rate, it might be worth considering. He advises using the savings from the lower initial rate to pay down your principal faster, rather than simply lowering your monthly payment.

When to Refinance: The 1% Rule

A good rule of thumb, according to John, is that if you can lower your interest rate by 1%, it’s worth considering refinancing. However, this can vary based on your loan balance. For smaller loans, the savings may not justify the closing costs, but for larger loans, even a 0.5% reduction can make a significant difference. John emphasizes the importance of working with a local lender who can run the necessary calculations to determine if refinancing makes sense for your specific situation.

The Election Year Effect on Mortgage Rates

With 2024 being an election year, John noted that we typically see stagnation in the real estate market as uncertainty about the future holds buyers back. However, given the current high rates, we might see some movement later in the year, especially if the administration pushes for rate cuts closer to the election.

Buy Down Rates: What You Should Know

Another topic John covered is buy down rates, a strategy that allows buyers to lower their interest rate by paying points upfront. While this can save money over time, it’s not always the best option, especially if rates are expected to drop in the near future. In some cases, sellers might offer to buy down your rate to maintain the sale price of their home—a tactic more common in larger metropolitan areas.

Why Choose a Community Bank?

Finally, John stressed the benefits of working with a community bank. Unlike large online lenders, community banks prioritize your best interests, offering personalized advice and services tailored to your unique situation. This level of care and attention ensures that you receive the best value for your mortgage, not just the best rate.

If you have any questions or want to explore your mortgage options, John Streeter and the team at Farmers State Bank are here to help. They’re dedicated to helping you navigate the complexities of the mortgage market and find the best solution for your needs.