So, again, what drives mortgage rates?
Are you a first-time homebuyer? Learn more about the available FHA home loan options in Duval County, Florida.
Factors Affecting Mortgage Rates Today
Many factors move mortgage rates; some are market factors, and others are personal. They include:
The Bond Market
Mortgage rates today are linked to the bond market, despite being commonly associated with the 10-year US Treasury note.
Mortgage bonds, sometimes known as mortgage-backed securities, are pooled mortgages traded in the bond market. They impact mortgage rates based on their demand – the rates rise when the mortgage bonds demand high (often when the stock market is doing poorly), and they fall when demand is low.
The Federal Reserve
Most people believe the Federal Reserve is responsible for setting mortgage rates today. Well, not quite, but it does influence them.
The Fed regulates short-term interest rates by raising or lowering them in response to how things stand economy-wise. While Fed rates are not directly linked to mortgage rates, the prime rate for mortgages changes shortly after the Fed rates do.
The Federal Reserve can control the money supply by managing short-term interest rates. It attains that by cutting interest rates whenever the economy appears to be straining. Note that these are not consumer rates but rather the rates used by banks when borrowing funds to lend to customers.
Remember that this doesn't directly translate to a hike in mortgage rates today. If the Federal Reserve feels that restricting the money supply is necessary, it raises the Fed rate. But to cope with the expenses of borrowing from the Fed, banks and other lenders will eventually be forced to do the same.
The State of the Economy
Mortgage rates vary depending on the current state and outlook of the economy. They tend to rise when the economy is performing well, meaning high spending and low unemployment rates. On the contrary, mortgage rates today fall when the economy's outlook isn't as promising, such as when the oil demand is low and unemployment rates are high.
Besides market factors, there are also several personal factors that a lender will look at when determining your mortgage rate today. Luckily, it's possible to manage personal factors, meaning you can – even if indirectly – influence your interest rate. These factors include:
Generally, a more significant down payment translates to a reduced mortgage since lenders look at less risk when a considerable property stake belongs to you. So, if you are comfortable making a 20% or more down payment, go for it! The lender will readily offer you a reduced interest rate.
Assuming you don't have that amount of money and cannot put 20% down, there's a high chance you'll be requested to obtain mortgage insurance, often known as PMI or private mortgage insurance. This fee is purposed to protect the lender if a borrower fails to meet their mortgage payments and adds to the total amount of your monthly mortgage payment.
When comparing possible interest rates, you may discover that a down payment of less than 20% could land you a somewhat lower interest rate than the one you'd get after putting 20% or more down. This is because your lender will have less risk as you pay mortgage insurance.
Moreover, it's vital to consider the total mortgage cost - the more money you put down, the cheaper the total borrowing cost. And as earlier mentioned, obtaining a reduced mortgage rate can go a long way in saving you money in the long run.
However, don't let this blind you from the fact that even if you're fortunate to get a reduced rate after putting less than 20% down, the additional monthly mortgage insurance payments you'll be making will increase your overall cost of borrowing. As such, don't just consider the mortgage rate but also your total cost to borrow.
Quick tip? Ensure that you factor in all of your loan costs when comparing different mortgage offers to evade any pricey surprises.
To lenders, a high credit score shows that you don't overextend your credit and make timely bill payments. And with a good credit score, they regard you as a reliable borrower who is unlikely to default on their mortgage.
Because lenders will not necessarily have to adjust for a poor credit score, they can offer you a better mortgage rate that's reasonably close to the quoted rate. On the other hand, a low credit score often sees lenders offer you a high-interest rate because they deem you more likely to default.
The lending program determines the credit score required to buy a house. For instance, a 620-credit score is required for a conventional loan (one that is not government-backed), whereas a score of 580 or higher is enough if you're seeking to obtain VA or FHA financing.
Making efforts to check and enhance your credit will give you the bargaining power to negotiate a reduced mortgage rate with your lender.
Type of Property
Lenders are interested in knowing whether a property is your primary residence, an investment property, or a second home. The mortgage rates will be the least if it's your primary residence (where you live). Being your home, you'll most likely make your monthly payments on time to avoid losing it.
On the contrary, if you own an investment property or second home and are experiencing financial difficulties, there's a high chance of defaulting on your mortgage, thus increasing the lender's risk. As a result, most lenders tend to demand higher mortgage rates to compensate for this risk.
Before offering you a mortgage, lenders need to look at your loan-to-value ratio, calculated by comparing your down payment to the mortgage amount. The less down payment you make, the greater your LTV, which means more lender's risk.
In simple terms, making a small down payment towards the property could mean less commitment to the mortgage and hence less reason to meet your monthly mortgage payments when circumstances get rough. But with a considerable amount of your money invested in the property, there's a high chance of you doing everything required to clear the debt.
Lenders charge higher mortgage rates when a borrower is likely to default on their loan, which could be seen through them making small down payments.
Forces Behind Current Changes in Interest Rates
The above factors apply – at least for the most part – to a normal marketplace. And as we all know, things have been far from average for some time now, and other forces are behind the current interest rate spike. They include:
Fed Rate Hikes
A rate hike by the Federal Reserve means that those looking to tap their home equity or get a mortgage may face an increase in their monthly mortgage payments.
Short-term floating-rate home loans, such as home equity lines of credit (HELOCs) and adjustable-rate mortgages (ARMs), are linked to the Fed funds rate. Therefore, as the Fed's rate rises, so do HELOC and ARM rates.
With ARMs, the rate is initially fixed for a specified time before switching to an adjustable rate. Nonetheless, due to the recent hike in the fixed, 30-year mortgage rates, ARM rates have fallen, and thus more enticing to many borrowers.
Inflation and mortgage rates today go side by side. When inflation spikes, interest rates follow shortly behind to maintain pace with the dollar value. And when inflation falls, mortgage rates do too. In times of minimal inflation, mortgage rates tend to fluctuate slightly or remain constant.
Increase in Property Taxes or Homeowners Insurance
There exist four key components that collectively comprise your monthly mortgage payments. They include principal, insurance, taxes, and insurance (often known as PITI). Property taxes are usually held in an escrow account to reassure your lender that you'll meet those obligations each year. Every month, you pay 1/12 of your overall insurance and tax payments.
Your home's value dictates the property taxes you are expected to pay. So, assuming the value has increased in the year, you may note an increment in your tax payment. Furthermore, if you modify your homeowner's insurance policy by increasing coverage in other areas or adding a rider, your insurance bill will undoubtedly surge.
Ways to Get a Better Mortgage Rate Today
Following the recent Fed interest rate hike, mortgage rates don't appear to be getting better any sooner. And if you're seeking to refinance or purchase a home, you might want to snag a favorable mortgage rate before another rate upsurge.
But how exactly can you attain a competitive mortgage rate today? Here's how.
Polish Your Credit Score
Your credit report provides lenders with a picture of your credit management history, which they can use to forecast your ability to manage credit in the future. Along these lines, lenders often see a good credit score as a hint that you will be a responsible borrower that they can count on to repay their mortgage on time.
When lenders have confidence in your ability to manage credit responsibly, they will most likely reward you with reduced loan interest rates. If your credit isn't as impressive, here are a few steps you can employ to enhance it before applying for a new loan:
- Settle your credit balances
- Make timely payments
- Defer applying for new credit
- Inspect your credit report for errors
- Fix derogatory information
Put More Money Down
Typically, the greater your down payment, the higher your chances of getting a reduced mortgage rate today. This is because by putting down a considerable portion of the buying price, you reduce the home's LTV ratio, which lenders use to estimate their risk of offering you a mortgage.
The smaller your mortgage size is compared to your property's value, the more likely your loan provider will consider you a safe borrower, which could see them offer you a lower mortgage rate. On the contrary, the less money you put down, the riskier your lender would perceive your mortgage, and hence a higher interest rate.
Shorten Your Loan Term
If you reduce your mortgage term from, say, a 30-year term loan to a 15-year or 10-year mortgage, it might prove easier to qualify for a reduced mortgage rate today. Short-term loans often have lower interest rates since the lender assumes less risk.
Assuming you've found a home you look forward to living in for the long term and can easily manage the payments, consider a shorter-term loan that you can repay sooner.
Compare Different Offers
Feel free to look into several credit unions and banks to discover what kind of mortgage rates they provide. You can go about that by calling or visiting a lender in person.
When contacting a credit union or bank, explain that you are considering applying for a mortgage with them and that you'd like to talk with the officer in charge of loans. Inform them that you're hunting for the best deal and inquire about their best rate. They may claim that receiving the best mortgage rate depends on an array of factors, which is okay.
Inquire about those factors, and suppose they try to be evasive, rephrase your question to, "what's the best rate you can offer me, assuming I was among your best clients?" Then, as soon as they tell you their best rate and what is required to cut it, you can talk to them about your eligibility for the mortgage and the best rate. If you qualify, lucky for you; if you don't, perhaps you can work on it.
In all honesty, yes! Duval County has plenty to offer regardless of what you're looking for, be it a business-friendly climate, a top-tier workplace, safe neighborhoods, or sandy beaches. And to mention it's also home to Jacksonville – its county seat and the largest city by acreage in the contiguous United States.
There's a lot to see and do in Duval County, and the following are nothing but a few of its notable top attractions.
Huguenot Memorial Park
If you and your family enjoy birdwatching, expect to love it at the Huguenot Memorial Park. Sitting on a peninsula over 295 acres bordering the Atlantic Ocean, Fort George Inlet, and St. Johns River, expect to spot terns, sea ducks, loons, gannets, and even rare bird species like the famous bar-tailed godwits.
Additionally, the park swanks a kids' playground and even allows vehicles to drive on its sandy beach.
Kayaking along St. Johns River
With Jacksonville being a vast city, it might take a while to explore its landscape. Luckily, kayaking along the St. Johns River is a unique and fun way to do that. Sign up for a guided kayaking tour and pick the launch point and route.
You can choose to paddle through the city's downtown and enjoy viewing its skyline, or you can opt for other quieter routes, some of which lead to salt marshes, parks, or historical highlights such as Ribault Club and Kingsley Plantation.
Museum of Contemporary Art Jacksonville
Situated in Downtown Jacksonville, the Museum of Contemporary Art Jacksonville is the ideal destination for art and history buffs. It features five galleries, several learning centers, and a theater.
It is also home to various multimedia works, contemporary sculptures, photographs, prints, and works by famous artists such as Alexander Calder and Joan Mitchell.
To enjoy an in-depth look into what the museum offers, bring your family here every month's first Wednesday from 5 pm to 9 pm for a guided art walk experience.
If you like to flee city life to enjoy a moment in the sun, sea, and sand, Jacksonville Beach is the ideal spot for you. With a wide-stretching sandy beach, there's so much to try here, from surfing to beach volleyball, not forgetting the picnic shelters and an oceanfront playground ideal for kids.
And when the day is done, you can relax and enjoy the photogenic view of the famous Jacksonville Pier.
Riverside and Avondale Districts
West of downtown Jacksonville is two adjacent districts: Riverside and Avondale, each of which has a cultural scene and rich art worth checking out.
While in Riverside, hit the galleries and shops in the bohemian Five Points area and take a stroll to the Cummer Museum and the district's heritage buildings. Despite Avondale being a residential neighborhood, for the most part, it's also an ideal destination for boutique shopping and dining.
As seen in this post, different factors – both market and personal – dictate your mortgage rate today, which determines your monthly mortgage payments. While it's impossible for you to control market forces, you can do something about the critical qualifying factors lenders consider as you seek to get a mortgage.
For instance, you can save for a more significant down payment and work towards enhancing your credit score to stand a better chance of landing the best mortgage rates. By doing so, you'll have drawn nearer to becoming the freshest homeowner in Duval County, Florida.