You can’t avoid hearing about mortgages every time the topic of inflation and interest rates come up in 2023. What’s the first thing the media outlets talk about when it’s time for an interest rate update? Where mortgage rates are.
Housing has increasingly been a hot topic, especially as the pandemic took hold. Housing went from “Oh, let’s go see some more homes next weekend” to “We need to make an offer on it in 5 minutes!” after scrolling by it on Zillow.
Why this happened is a debate among realtors, economists, and many others. The 3 main theories that have been consistently circulating as to the cause for runaway housing prices are:
That last point is the main topic of today’s post. When the Federal Reserve, also referred to as “The Fed”, slashed interest rates for fear the economy would falter in the face of a global pandemic, that put gas on the fire of an already-hot housing market.
Mortgages rates were so low, that it made it illogical for some to save money or invest, when they could borrow money for a home at 2.95%.
In fact, according to The Mortgage Reports, the average rate in January 2021 was 2.65%, a new record low. A record! And this was while many people were flush with cash from keeping their jobs, and receiving stimulus money from the Coronavirus recovery. For comparison, mortgage rates were over 15% in the 1980's and have been trending downward ever since.
Then, in 2022, as inflation started to affect Americans, the Fed started to ramp up the rates, aggressively at times, up over 5% and further. That’s higher than rates had been for 10 years!
An interesting observation is even though rates have been increasing aggressively over the last several months, home prices have not come down by much. You might be thinking to yourself, “I can only afford a $540,000 home instead of a $700,000 home with these rates”, yet the house you were looking at slashed the price only by $25,000.
What happens next in the housing market is anyone’s guess, as the mismatch between buyer’s finances and willingness to pay navigates the prices that sellers think they can still receive.
So, if this housing market and expensive cost of borrowing hasn’t discouraged you yet, what type of mortgage should you look for?
Remember, a mortgage generally consists of your principal (loan amount) and interest you pay on that principal (the mortgage rate)
There are several types of mortgages available from Conventional, FHA, VA, and USDA. Conventional mortgages are some of the most widely known.
Normally you can choose between a 15-year fixed, a 30-year fixed, and ARM, or Adjustable Rate Loans. ARMs are riskier because after a fixed number of years (3, 5, or 10) they adjust annually. And if you find yourself in an interest rate environment like today’s, well your payments can go up substantially.
15-year and 30-year fixed conventional loans are popular because the borrower knows what their monthly payment is going to be for the foreseeable future. The payment stays about the same for the life of the loan, making it easier to work into your overall budget and financial plan. Changes to property taxes and insurance costs can affect your overall mortgage payment depending on how your escrow is set up. The actual mortgage payment alone won’t change.
15-year conventional loans can be beneficial if you can make it work. Not only is your home paid off in half the time as a 30-year loan, but you can also qualify for lower mortgage rates.
This is because the lender sees you as less of a risk. You’re qualified to and will be able to pay them back in 15 years instead of 30 years. While ideal, these loans are also harder to pursue because of sky high housing prices, which in turn leads to burdensome housing payments for some.
Therefore, obtaining a 30-year fixed mortgage may be easier to manage, especially since most can refinance in the future as rates and financial situations change. Additional payments can also be made over the course of the loan to pay it off sooner, typically without penalties.
So, if you have 20% or more of your home price saved for a downpayment, have a solid credit score, and can manage to keep your total housing costs under 30% of your net income, then you might just be ready for a mortgage, and a conventional fixed rate mortgage at that.
Talk to your Pattern Financial Advisor about if taking on a mortgage is right for you at this time in your life. We’ll help you figure out the best way forward!
Effective September 8th, 2022
This privacy policy (the “Privacy Policy”) discloses the privacy practices for Pattern Technologies Inc. and its affiliates (collectively, “Pattern,” “we,” “our,” and “us”) use the personal information we collect about you through our website, mobile application, and other online services (collectively, our “Services”) and when you otherwise engage with us. This Privacy Policy also describes how you can limit the personal information we collect about you. In this Privacy Policy, we use “customer” and “you” to refer to anyone who uses our Services.
By using our Services, you agree to this Privacy Policy. Your continued use of our Services after we revise this Privacy Policy means you accept any changes we make, so please check back periodically to our Privacy Policy for Updates.
Information Collection, Use and Sharing
We are the sole owners of the information collected on this site. We only have access to/collect information that you voluntarily give us via our mobile application, email, or other direct contact. We will not sell or rent this information to anyone. We will only use your personal information for the purpose for which it was collected.
Only employees who need your information to perform a specific job (for example, customer servicing) have access to personally identifiable information. We will use your information to respond to you, regarding the reason you contacted us.
We will not share your information with any third party outside of our organization, other than as necessary to fulfill a request you may have.
We may retain your personal information for the purpose of regulatory compliance. Our regulators require that we retain certain information about our customers for the purpose of documenting the quality and nature of advice we render, preventing money-laundering and the funding of terrorism, and fraud prevention.
Unless you ask us not to, we may contact you via email in the future to tell you about (for example) new products or services, or changes to this privacy policy.
Your Access to and Control over Information
You can do the following by contacting us at team@patternfi.com
- See what data we have about you, if any.
- Change/correct any data we have about you.
- Have us delete any data we have about you.
- Express any concern you have about our use of your data.
- Opt out of any future contacts from us.
Cookies
Pattern conducts online advertising across the Internet. Some of our business partners, including Google, place cookies on our website for remarketing – serving ads on various websites based on someone’s past visits to our website. You can opt out of Google’s use of cookies by visiting Google’s Ads Settings. We may use cookies on this site, but we do not link the information we store in cookies to any other identifying information you may provide us while using our services.
Links
This web site contains links to other sites. We are not responsible for the content or privacy practices of these other sites. We encourage you to be aware of when you leave our site and to read the privacy statements of any other site that collects personally identifiable information.
Anonymized Data
We may anonymize and aggregate data such that it is not personally identifiable in order to better understand customer trends, strengthen security, and improve our services.
Location of Services
Presently our services are only available to customers with a primary address in the United States, and who are US citizens or permanent residents.
Do Not Track Lists
Some web providers have the ability to transmit “Do Not Track” (“DNT”) notifications. At this time we do not recognize DNT notifications.
Child Privacy
Our Advisory services are not intended to be used by children. If we become aware that we have collected data without legally valid parental consent from children under thirteen (13) years of age, we will take all reasonable steps to delete it as soon as possible.
Other Sites We May Share Information With
We will only share your information with those organizations necessary to complete your requests. Performing securities transactions requires the involvement of several parties including third-party identity verification vendors, an introducing broker/dealer, and a custodian.
Pattern leverages “Plaid” to connect your bank account with your brokerage account, verify bank account information, and confirm the balance in your account prior to initiating a transaction. Plaid maintains a separate privacy policy which can be found here: https://plaid.com/legal/#end-user-privacy-policy
Updates
Our Privacy Policy may change periodically and updates will be posted on this page. If you feel that we are not abiding by this privacy policy, you should contact us immediately at team@patternfi.com
