Mortgage Talk - Outlook for 2019 Home Buyers

Focus is shifting to affordability for many home buyers...
Frank Merola is Executive Mortgage Banker for William Raveis Mortgage LLC.

The path to owning a home for Cape Cod residents may be turbulent this coming year. This is due to the recent shortage of homes for sale, higher mortgage rates and higher average selling prices for homes in the area. The focus for 2019 for many prospective homeowners is shifting to the subject of affordability.

By historical standards rates are still fairly low in the mid 4% range. In 2018, we saw rates start the year near 4% then increase all the way up to 5% then back off a bit to where we are now.

The overall projection is for rates to rise again in 2019. In 2018 we saw the Federal Reserve hike rates in all four quarters.

Interest rates make a difference in affordability. If a $300,000 home increases in value by 3% that’s roughly a $9,000 increase which will cost a buyer roughly $46 more per month (with a 30-year fixed rate mortgage of 4.625%, APR 4.78%).

For every half point or .50% increase in mortgage rates, this will cost a buyer roughly $105 more per month on a $350,000 loan.

These increases could mean tens of thousands of dollars in interest over the life of a 30-year loan. The bigger concern is that these increases could mean many would-be buyers are now squeezed out of the market due to inability to qualify any longer.

Here are some options for would-be homeowners to fight these rising costs:

  1. Consider an ARM type mortgage. ARM stands for Adjustable Rate Mortgage. Typically, we see rates on these products be lower than a fixed rate product. A 7 year ARM would mean the rate is fixed for the first seven years and then could adjust. This can be a good option for someone not planning on being in the home too long or whose income is likely to increase in the future.
  2. If you are putting less than 20% down, you will typically have a Private Mortgage Insurance (PMI) payment. Some lenders and loan programs allow clients to buy out their PMI payment with a one-time upfront payment. This would reduce the overall monthly payment a borrower would have moving forward.
  3. Consider paying points. Just like the monthly payment goes up when rates go up, paying points to lower a rate would adjust the monthly payment lower.
  4. Adjust expectations and determine if you really need that 2 car garage or extra bedroom. Often times a fixer upper home or house that needs a little updating can be had for significantly less money resulting in a more affordable monthly payment for the borrower.

Please feel free to contact me if you have any questions.

Frank Merola

Executive Mortgage Banker

NMLS Mortgage Loan Originator ID: 1020051

William Raveis Mortgage LLC NMLS ID #2630

Cell 508-740-5922

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