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The mortgage process can be complex, and higher interest rates have raised many questions.
To give you the best information, I asked economics expert and mortgage consultant, Adam Boss, from Penrith Home Loans about interest rates and opportunities in today’s market.
Before I jump into my Q & A with Adam, I’ll cover just a couple basics:
A mortgage is a loan that helps you finance the purchase of a home. When you take out a mortgage, you agree to repay the loan, plus interest, over a set period of time, usually 15-30 years.
Interest Rates play a crucial role in the cost of your mortgage. The higher the interest rate, the more you’ll pay in interest charges. Higher rates can make it much more challenging to afford a home, especially for first-time buyers.
So, if you’re in the market to buy, knowing all your options is key.
Adam Boss is here to help navigate some of the options. He’s our local economic whiz with a boatload of experience in home financing. For the past 20 years, Adam has collaborated with clients like you and me on all things mortgage-related. So, let’s get right into it:
Question: Can I buy down my mortgage rate with points?
Adam: A borrower can often secure a lower interest rate by paying a fee.
This fee is based on a percentage of the loan amount (points). This fee can be paid by the buyer or paid through a credit from the seller (often in exchange for a higher purchase price).
This strategy can lower your monthly payment and increase your buying power.
Q: Would an ARM (Adjustable Rate Mortgage) be a good fit for me?
Adam: An ARM may be a good fit for some buyers. In general, ARMs offer a lower rate than a traditional 30-year fixed mortgage.
This can be for the first 3, 5, or 10 years before the rate will adjust. This savings may be a good fit for some clients, but it is important to understand the risks once the initial period has passed.
The rate could adjust up or down depending on the market environment at that time.
Q: When can I lock in my interest rate, and how long will the lock last?
Adam: Most of the time you would lock in your interest rate once you have an agreement to purchase a home. The lock should extend to the closing date or beyond. The most common lock period is for 30 days.
You might also be able to lock in your rate during the preapproval phase. If your closing is delayed, you can usually pay a fee to secure more time.
Q: What’s the difference between a prime interest rate and my interest rate?
Adam: A “Prime Rate” is established banks to lend money to their customers for things like credit cards, equity lines, and other consumer loans. The prime rate is established by the rate that banks borrow from the Federal Reserve.
The bank will then lend out money with a margin added to the Federal Funds rate to make a profit. The current policy of the Federal Reserve is to raise the Fed Funds rate to fight inflation.
Mortgage rates, however, are set for the most part by the bond market. Since homeowners tend to stay in their homes for longer periods of time, the 10-year Treasury (or 10-year Bond ) sets the market for mortgage rates. This is an important difference to understand if you are considering buying a home.
Thanks for all the info, Adam!
If you’re interested in working with Adam, he’s a great guy and super knowledgeable. Click here for Adam’s contact info.
And at any rate, I’d love to hear from you. Please call or email me anytime for real estate advice or questions.
Email me at drew@windermere.com or call me at 206-619-2739.
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