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Mortgage Rates by Loan Product
Mortgage Rate ReportTuesday, January 23, 2018
Mortgage rates were mixed on the week although they seem to be gradually moving higher in response to the Federal Reserve's decision to raise interest rates in its December meeting. The Fed highlighted continued job growth, declining unemployment, expanding household spending and increasing business investment in its decision to increase the key Federal Funds rate by .250% to 1.250% to 1.500%. From the Fed's perspective, the positive labor and economic indicators outweighed lower than targeted inflation to justify the interest rate hike, which was widely anticipated.
Although mortgage rates surprisingly dropped immediately after the Fed's announcement, the dip was short lived and we have seen rates move moderately higher over the course of January. A string of positive labor market reports combined with the continued strength of the stock market has pushed treasury yields higher, with mortgage rates responding in similar fashion. While mortgage rates continue to be attractive, they have rebounded from their post Fed meeting lows and rates were flat or higher this week, depending on the loan program.
The interest rate for a 30 year fixed rate mortgage held steady at 3.875% and the interest rate for a 15 year mortgage also remained flat at 3.125%. The interest rate on a 5/1 adjustable rate mortgage (ARM) was stable at 3.250%, remaining attractive to borrowers seeking shorter-term mortgage programs. Jumbo mortgage rates also stayed put at 4.000% after increasing last week. On the flip side, non-owner occupied mortgage rates rose 0.125% for the second week in a row to 4.250%. FHA mortgage rates and VA mortgage rates also climbed with FHA rates increasing 0.250% to 3.500% and VA rates rising 0.125% to 3.375%. Although both FHA and VA mortgage rates inched higher, the programs remain appealing to borrowers focused on low or no down payment loan options, especially first-time home buyers.
The Federal Reserve's decision to increase interest rates was anticipated and although mortgage rates dropped briefly they have since followed the Fed's lead and moved higher in January. With the Fed reinforcing its outlook for multiple anticipated interest rate hikes in 2018 and economic momentum continuing to build to start the year, prospective borrowers looking to buy a home or refinance their mortgage may be able to lock in a lower mortgage rate by acting sooner rather than later, before interest rates rise, potentially at an accelerated pace.
Because mortgage rates fluctuate daily, we continue to actively monitor the mortgage market for updates. Borrowers should check the FREEandCLEAR mortgage rate tables regularly to review customized, updated mortgage rates for lenders in their area. Our rate tables are free to use and require no personal information.
Why Select an Adjustable Rate Mortgage (ARM)
Lower Initial Rate.
The initial interest rate for an ARM is typically lower than the interest rate on a 30 year fixed rate mortgage. Borrowers benefit from the lower interest rate, sometimes called a “teaser” rate, for the first 3, 5, 7 or 10 years of the loan, depending on what type of ARM you select. After this initial period, which is also called the fixed rate period, the interest rate is subject to change and possibly increase. Borrowers who know they are only going to own their home for a set period of time are able to take advantage of the lower interest rate afforded by an ARM, without being exposed to the risk that their interest rate increases in the future.
Lower Monthly Payment.
A lower interest rate means a lower monthly payment for borrowers. A lower monthly mortgage payment provides additional financial flexibility for borrowers and makes owning a home more affordable, at least during the initial fixed rate period of the loan. The flip side of an adjustable rate mortgage is that your monthly payment can potentially increase in the future if interest rates go up. Borrowers need to make sure that they can afford their monthly payment both at the beginning of the mortgage, when the interest rate is lower, and over time if their payment goes up.
Larger Mortgage Amount.
The lower teaser interest rate and monthly payment enable borrowers to afford a larger mortgage amount and potentially buy more home. Being able to qualify for a larger mortgage amount is one of the main attractions of an adjustable rate mortgage. The downside of being able to afford a larger loan amount with an adjustable rate mortgage is that you lose the certainty that comes with a fixed rate mortgage, where the interest rate remains the same over the life of the mortgage.
You Think Interest Rates Will Go Down.
The interest rate for an adjustable rate mortgage is subject to change after a fixed period of time, usually the first 3, 5, 7 or 10 years of the mortgage. The period of the loan when the interest rate can change is called the adjustable rate period and lasts until the end of the loan term, which is usually 30 years. If you think interest rates will decline in the future then an adjustable rate mortgage may be a good option. Because if interest rates go down during the adjustable rate period of your loan, your monthly payment will decrease which is great for borrowers. Please note that predicting interest rates is highly challenging so this approach can expose you to significant risk.
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More FREEandCLEAR Mortgage Resources
Use our Adjustable Rate Mortgage Calculator to calculate the initial monthly payment and worst case scenario for an ARM based on today’s interest rates
Understand the ins and outs of an adjustable rate mortgage (ARM) including key loan terminology and how they work
Adjustable rate mortgages involve more risk than other types of mortgages. Be sure to understand the downsides of an ARM so you can make an informed decision when you select your mortgage
Got a question about an adjustable rate mortgage (or any mortgage topic)? Ask the FREEandCLEAR Mortgage Expert and receive an informative response within 24 hours