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President Trump pushes for lower interest rates

In spite of intense pressure from President Trump, the Federal Reserve did not change its key interest rates when it met last. Instead, the Fed reiterated its stance that it probably not hike rates in the near future. The reasons for their decision included low inflation and a strong economy. 

Does a Lower Interest Rate Make Sense?

Trump stated that he wanted the economy to continue to strengthen so he urged the Federal Reserve to lower rates in hopes that it would spur greater growth. Some experts, such as Kathy Bostjancic, an economist at Oxford Economics, projects that slashing the interest rate by one percentage point in 2019 will help the economy grow by about one-half of a percentage point in 2020. In order to be fully beneficial, though, businesses would need to be able to find enough qualified workers so they can make more goods and provide more services. Already, however, companies are having a hard time doing that because, at 3.8 percent, the nation’s unemployment rate is the lowest it’s been in close to 50 years. 

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Cash-Out Mortgage Refinancing: Does it Make Sense for You?

In general, when interest rates are on the rise, homeowners don’t refinance their mortgages. This makes sense because many people choose to refinance in order to reduce their monthly payments. When refinances are initiated during periods of rising interest rates, though, the reasoning behind them is often quite different. 

Why Refinance When Interest Rates are High? 

In most cases, when a homeowner decides to refinance their mortgage when the interest rates are high or rising, the action is fueled by the desire to “cash out.” This means that the new mortgage is larger than the balance due on the old one with the excess money being used to fund other, discretionary purchases. 

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Should You Refinance Your Mortgage Now?

By now, nearly everyone has heard about the Federal Reserve Bank’s surprise move to keep interest rates steady at their last meeting. In fact, the Feds even went so far as to indicate that they likely wouldn’t raise interest rates again in 2019. This is good news for those who were in the market to purchase a home but who were concerned about the effects of the incremental interest rate hikes would have on their bottom line. 

What About Refinancing? 

What might not be as clear is whether the Feds’ “patient approach” to the possibility of future interest rate increases means that it’s a good time for current holders of a mortgage to refinance. While keeping in mind that it’s possible that interest rates might start to fall — which would make refinancing even more attractive — there are other considerations you should think about as well. 

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Celebrate the Spring Home Buying Season with Lower Interest Rates

In March, the Federal Reserve Bank surprised everyone by not raising interest rates. In fact, the agency stated that it would likely not raise interest rates again in 2019. This announcement came quickly on the heels of their policy generated just six weeks ago. At that time, the agency indicated that they would take a patient stance about the market when it came to deciding about future hikes in the interest rate. 

Sparking Home Buying Interest

While the most popular home buying season of the year — spring — is already underway, the announcement by the Federal Reserve Bank to hold off on any interest rate increases for the rest of the year will provide it with a much-needed boost. Even though interest rates in 2018 continued to be low compared to other years, the fact that they kept increasing made some people reconsider whether buying a home was in their best financial interest. That misgiving is now no longer an issue which should prompt a renewed flurry of mortgages throughout 2019 and starting with the spring. 

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What Does it Mean to Buy Down Your Mortgage Rate?

Buy Down Your Mortgage Rate

One way of doing so is to buy down your mortgage rate. This is accomplished by paying for mortgage points. These mortgage points — sometimes they’re referred to as closing points or discount points — are a fee that is paid to the mortgage broker or lender. In exchange for the payment of mortgage points, you receive a discount. For example, one percent of the loan’s total amount for each mortgage point paid. 

Mortgage Points Explained

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Want to Qualify for the Best Mortgage Rate? Do These 3 Things First

Purchasing a home is not only likely to be the biggest investment you’ll ever make, but it is also the largest debt you’ll assume in your lifetime. It pays to do your research when it comes to ways to qualify for the lowest mortgage rate. After all, just a couple of percentage points can make the difference in you paying thousands of dollars more over the course of the loan.

1. Check Your Credit Score

Your credit score is the single most important item when it comes to securing the best mortgage rate. Being able to improve it takes time so ideally. you should start by taking a look at your credit score at least several months before you actually want to apply for a mortgage.

According to myFICO.com, the difference you’ll be if you have the highest credit range and one that’s average is about $33,000 in total interest over the course of the loan. Ways to improve your credit score include checking your credit report for mistakes, paying off credit card debt, spending only 20 to 30 percent of your credit limit and paying your bills on time each month.

2. Determine the Best Mortgage Type

While some mortgages are limited to a certain sector of the population — the military, for example, or those who meet certain income guidelines — you can usually categorize them as either those that are backed by the federal government and conventional loans. About 65 percent of all mortgages in the United States are those issued by private lenders such as credit unions, thrift institutions, mortgage companies and commercial banks. In some cases, these conventional loans might also be guaranteed by agencies that have government ties like Fannie Mae and Freddie Mac.

Government-backed loan programs are also offered by private lenders, but the federal government acts as the full or partial guarantor. In general, these loans have lower down payments and credit score expectations than conventional mortgages. There are usually more flexible borrowing and income requirements. With these advantages, though, come stipulations regarding the loan. The borrower might live at the property as their primary residence and it cannot be used to generate rental income or as an investment.

3. Look at Loan Terms

Regardless of the mortgage lender you deal with, they are looking to reduce the risks they take by offering you a loan. This means that a shorter loan term — such as a 15-year mortgage instead of the typical 30-day mortgage — will net you a more attractive interest rate. The payoff is that your monthly payments will be much higher.

As an example, if you pay an interest rate of 4.23 percent on a $260,000 mortgage loan for 15 years, your monthly payment will be about $1,953. Secure that same loan amount and mortgage rate for 30 years and your monthly payments will only be about $1,276. By doing that, though, you’ll be paying an extra $100,000 in interest of the life of the loan.

There are a number of factors that go into the search for the lowest rate. The above three provide you with some flexible options to suit your particular situation.

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Why Are 30-Year Mortgage Rates So Popular?

This last week the interest rate on a fixed-rate 30-year mortgage rose a very small amount, so it now sits at 4.86%. Despite being a slight increase when going week-to-week, this is nearly a full point higher than the interest rates on the same mortgages a year ago says Freddie Mac.

These higher interest rates change the entire home buying process, particularly the part where potential purchasers weigh out the real costs of borrowing from lenders. In fact, some real estate markets have begun to see dips in both prices and sales because of rising interest rates.

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Are Rising Mortgage Rates Scaring New Buyers?

It comes as no surprise that rising mortgage rates are impacting purchasing power. A recent study released by Realtor.com shows just how much monthly home loan payments are rising – and the results aren’t very pretty.

Rising costs are obviously restricting the ability of many potential purchasers to afford a new home of their own. Others are being scared away from taking on a home loan thanks to an unstable market. The question becomes if rates continue to rise, will homeowners really be able to afford their loans?

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Are Retirees Having A Hard Time with Financing?

Once employment earnings cease, retirees tend to take a decently sized drop in their incomes. Social security benefits, for example, are but a small percentage of what retirees once made, while pensions are hardly heard of anymore.

The difference, however, is that retirees could potentially have hundreds of thousands of dollars stored away in their IRAs, 401(k)s, personal savings accounts, or other sources. Yet these same people sitting on substantial nest eggs are often shot down when they try to get a new mortgage or refinance their current ones. The reason? They just don’t have a high enough monthly income.

Unfortunately, many loan officers just don’t know how to work with people who are close to or already retired. There are options available for these people who appear to be poor based on income but are actually rich in assets.

 

Loan Options for Retirees

Pre-retirees (those within a few years of retirement) and retirees do have options when it comes to loans, if they’ve been smart with their money and saved a considerable nest egg. Typically, there are two options available.

The first option allows ongoing distributions that come from places like IRAs, 401(k)s, and pensions as acceptable monthly income for obtaining a mortgage. This is based upon the total yearly amount withdrawn from the accounts yearly, divided by twelve, to come up with a base monthly distribution amount. These funds must be enough to sufficiently qualify for the new loan or refinancing.

The second option is only available to those who haven’t yet tapped into their retirement accounts. Loan officers can use the balances of these retirement accounts as imputed income, which means that the money is available (or will continue to be) to the borrower for the purpose of supplementing their monthly incomes for the basis of repaying their loans.

 

Tips for Retirees and Pre-Retirees Trying to Get Mortgages

It is possible for retirees and pre-retirees to get new mortgages or to refinance their current home loans. The biggest obstacle is that many lending institutions and individual loan officers don’t know the programs available for these unique situations.

Keeping this in mind, here are some tips for getting loan approvals during retirement:

  • Do your own research ahead of time so you have some idea of the options available to you
  • Find a loan officer who has extensive knowledge in providing retirees with loans
  • Gather up documentation which proves how much money you have in your retirement accounts, so it can be used when qualifying for a loan
  • Remember that if a loan officer tells you they have no idea what programs you’re talking about when referencing your options, then they aren’t the right one for you

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