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With mortgage rates rising above 7 percent, alternatives like temporary interest reductions and down payment assistance programs are becoming more popular, lenders say.
Borrowers are now looking for options to lower their down payment and expect interest rates to drop enough to justify refinancing in the next few years.
Freddie Mac’s latest weekly survey showed 30-year fixed-rate mortgages accelerated gains to 7.08 percent, up 14 basis points from last week. At that time, a year ago, the average interest rate was 3.14%.
“The housing market has been volatile as the 30-year fixed mortgage rate fell 7 percent for the first time since April 2002,” said Sam Hater, chief economist at Freddie Mac.
According to Hater, “Many prospective homebuyers are deciding to see where the housing market is headed, making demand and home prices even more depressing.”
Realtor.com economic data analyst Hannah Jones said monthly payments for median-priced homes rose 78 percent to buyers, down 20 percent from a year ago.
“That’s a $1,000 increase over the typical household wage last year,” Jones said in a statement.
Looking for new options
When borrowers are worried about high mortgage rates, lenders use options like temporary waivers, allowing homebuyers to use the seller’s discount as part of the down payment to get a lower mortgage interest rate at the beginning of the loan term.
Temporary rate cuts aren’t new, but industry experts say they’ll get more attention when rates rise. At maturity, the borrower pays a lower interest rate for the first year or two. After that, you will have to pay the full installment for the rest of the loan term.
United Wholesale Mortgage (UWM) launched this product in August. In September, Rocket Mortgage and its wholesale subsidiary, Rocket Pro TPO, announced that homebuyers’ first-year mortgage payments fell by 1 percentage point.
Blake Bianchi, founder, and CEO of Future Mortgage, Boise’s loan officer, said he’s seen customers opt to buy at interest rates as low as 2 percent to 1 percent.
“About 50 percent of our customers use this program to access affordable payments,” Bianchi said. “I think more consumers will be able to refinance in two years.”
Another option for customers is the pay-in-advance program, which lenders say is gaining in popularity.
“First Housing’s growth this year is driven not by rates, but by better products, increased access to products across all channels, and a more moderate housing market with low-income and middle-class borrowers. said Shawn Grapevine, UWM branch manager.
Changing deposit program requirements could also help, LO said. Bianchi said housing finance institutions are discussing changing the income requirement from 80 percent to 100 percent of the local median income, and changing the program’s requirement could help more homebuyers finance up to 3 percent. Payment must be made with a 5% advance.
Demand is at its lowest level in 25 years
The Freddie Mac Index collects mortgage rates reported by lenders over the past three days and collects data from thousands of lenders across the country since November.
Focuses on existing fully amortized home equity loans with 20% deposits and excellent credit. Other indices also show rates slightly above 7%.
HousingWire’s Mortgage Rate Center, Black Knight’s Optimal Blue OBMMI rate mechanism also includes some refinance products, measuring the 30-year rate at 7.009 percent Wednesday, down from 7.026 percent last week. Meanwhile, over the same period, the 30-year fixed rate (over $647,200) rose from 6.746% to 6.908%.
In Wednesday’s Mortgage News Daily, mortgage rates were 7.07% for compliance and 6.05% for default.
Borrower demand for mortgages hit a 25-year low last week amid economic uncertainty and economic concerns.
According to the MBA study, the composite mortgage index for the week ended October 21, 2021, fell 1.7% from the previous week and 69% from the same period. This weekly survey since 1990 covers 75% of US home mortgage applications.
NerdWallet housing expert Keith Wood said in a statement, “The fixed rate on 30-year home loans will rise nearly 4 percentage points in 2022, leaving many potential buyers unable to afford homeownership. The last time mortgage rates rose was in 1981 after an aggressive Fed rate hike.”
The next step for the Fed
Mortgage rates are rising as monetary policy tightens to curb inflation. The Fed has raised interest rates five times this year, including three consecutive 0.75% hikes.
“Like the last three meetings, next week’s meeting is expected to rise by 75 basis points as the latest inflation data shows insufficient signs of cooling,” Jones said. “A fourth consecutive increase of 75 basis points will be the largest increase in the federal funds rate in 30 years.”
Meanwhile, short-term government bond yields are showing high yields, suggesting an economic recession is imminent.
The two-year bond, closely linked to the Fed’s rate move, fell 16 basis points to 4.39 percent on Wednesday. During the same period, the 10-year bond rose from 4.14% to 4.04%.
“Mortgage rates are now above 7% as investors in the mortgage bond market fear that inflation will hurt lenders’ returns,” said Holden Lewis, housing and mortgage analyst at NerdWallet. “Central Bank Raises Short-Term Rates”. The Fed meeting, which is expected to do so, also raised mortgage rates.”
Reference Source: Housing Wire
