Mortgage Rates Hit All Time Low
Filed under: Credit Counseling Blog
The economy took a major nose dive after the real estate bubble burst, and all the financial institutions that were gambling on high risk real estate investment backed securities went down with it but that doesn’t mean that there isn’t opportunity in real estate and owning a home now. If the home that you’re looking to buy in has some good investment opportunity and you think that the real estate has bottomed out now would be a great time to purchase some property.
Between 2004 and 2005, mortgage rates dropped to around 5% – a record low. Many people, including mortgage professionals, felt that rates couldn’t go any lower. This triggered a flood of new home buyers and many existing homeowners refinanced their home loans to take advantage of these low rates. Although rates gradually increased during the financial crisis of the late-2000s, this increase was short-lived. As of 2012, mortgage rates have dipped to a new all-time low, with rates on purchases and refinances below 4%.
Reasons for Low Mortgage Rates
Economic conditions in the world and the United States directly affect mortgage rates. As a rule, when the economy is good, mortgage rates increase. When the economy is bad, mortgage rates decrease. A shaky economy moves many consumers to save their money. They might shop less, take fewer vacations and postpone large purchases (such as buying a home) until their confidence in the economy increases. Unemployment and pay cuts are also typical of a bad economy. All these factors contribute to fewer mortgage applications and a high inventory of homes.
A slow or stagnant housing market not only affects mortgage lenders, but also drives down property values. To keep the mortgage industry active during a poor economy, the Federal Reserve often lowers home mortgage rates. Lower rates result in lower home loan payments, and this factor alone entices many to consider homeownership or refinancing. And with lower rates and payments, ownership becomes a reality for those who take pay cuts after a layoff or job loss.
How to Benefit from Low Mortgage Rates
Reduced home loan rates aren’t permanent. As the economy begins to show signs of improvement, rates will gradually increase. If you’ve ever considered buying a home, now is the time to jump into ownership. Low mortgage rates increase your purchasing power, wherein you can afford a larger mortgage for less. And if you’re already a homeowner, refinancing to a lower interest rate can reduce your home loan payment and increase your monthly savings.
But low mortgage rates aren’t available to everyone. To benefit from these rates, you must meet the qualifications for a home loan. Requirements vary by home loan program. You need a good credit score – a 680 minimum for conventional mortgages and a 620 minimum for an FHA. In addition, you must be able to document your income with tax returns or paycheck stubs. After a review of your credit report, income and assets, a lender will decide whether you meet the qualifications for a new purchase or a refinance.
Written By : Credit Counselors Corporation
Credit Counselors Corporation (CCC) is your trusted authority in the credit counseling and debt management industry. Helping 1000′s of people save over $400,000,000 in credit card interest payments, CCC is an agency who knows what it takes to help you achieve your financial...Read More