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Mortgage Rates by Loan Product
Mortgage Rate ReportTuesday, October 24, 2017
Mortgage rates continue to resist gravity as well as the Federal Reserve's actions and remained stable for another week. Although the Federal Reserve left interest rates unchanged at its September meeting, its move to start trimming its balance sheet by selling U.S. treasuries and mortgage-backed securities as well as its signaling of a rate hike before the end of the year pushed mortgage rates moderately higher across the board in mid-September. Following this initial uptick, however, mortgage rates have been relatively steady for over a month. Mortgage rate stability continued this week despite the Federal Reserve releasing the minutes from its September meeting last week that all but guaranteed an interest rate hike before the end of the year.
In its September statement, the Fed highlighted labor market strength, improving household spending and growing business investment as offsets to moderate inflation in deciding to keep the federal funds rate unchanged. Although the Fed kept the federal funds rate steady at 1.000% to 1.250%, the decision to start its previously announced balance sheet shrinking program in October moved treasury yields higher and mortgage rates followed suit, with most programs experiencing a 0.125% increase in rates.
The minutes from the September meeting, released last week, show that Fed members continue to debate the impact of low inflation on the economy as well as the projected trajectory of inflation in the future. While some Fed board members pointed to low inflation as a reason to leave rates unchanged, others focused on projected inflation growth and multiple positive economic factors to support a near term interest rate hike. The more aggressive perspective seems to have won the debate and we are poised for the Fed to raise rates in December, as many industry analysts have predicted.
Fortunately for borrowers, mortgage rates have been relatively unresponsive to the Fed's intentions and were steady for another week. The interest rate for a 30 year fixed rate mortgage remained unchanged at 3.750% while the interest rate for a 15 year mortgage held at 3.000%. The interest rate on a 5/1 adjustable rate mortgage (ARM) stayed put at 3.000%, remaining attractive to borrowers seeking shorter-term mortgage programs willing to take on the risk of an ARM. FHA mortgage rates were flat at 3.250%, matching VA mortgage rates which also remained at 3.250%, with both programs appealing to home buyers focused on low or no down payment loan options. Keeping with the broader market trend, non-owner occupied mortgage rates remained at 4.000%. Bucking the trend in a positive direction, jumbo mortgage rates dipped 0.125% to 3.750%.
Although the Fed did not change rates, its economic outlook or forecast for future rate hikes in its September meeting, its actions and signals increased market uncertainty which usually leads to higher mortgage rates. Four weeks of relatively stable mortgage rates have returned a sense of calm to the mortgage market and interest rates remain near historical lows. With the Fed meeting minutes reinforcing the expectation for a rate hike expected before year end as well as three more anticipated hikes in 2018, prospective borrowers looking to buy a home or refinance their mortgage may be able to lock in a lower interest rate by acting sooner rather than later, before mortgage rates rise again, potentially at an accelerated pace.
Because mortgage rates change daily, we continue to actively monitor the mortgage market for changes. 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 Interest Only Mortgage
Lowest Initial Monthly Payment.
With an interest only mortgage you pay only interest and no principal during the for the first 3, 5, 7 or 10 years of the loan, which is called the interest only period. Additionally, your interest rate is fixed and does not change during the interest only period. Because you are not paying principal during the interest only period, your monthly payment is lower than the payment for an amortizing loan such as a fixed rate mortgage or an adjustable rate mortgage (ARM), when the borrower pays both principal and interest. The flipside is that at the end of the interest only period, your payment increases because your are required to start paying both principal and interest for the remainder of the loan term, which is usually 30 years. Plus, your interest rate can potentially increase during this period of the loan which would cause your payment to go up even more.
Larger Mortgage Amount.
The lower initial monthly payment provided by an interest only mortgage enables borrowers to afford a higher loan amount and buy more home. Being able to afford for a larger mortgage is one of the main benefits of an interest only mortgage. Borrowers who are enticed by the lower payment and higher mortgage amount offered by an interest only mortgage should also be aware of the possible payment shock in the future. Borrowers need to make sure that they can afford their monthly payment both at the beginning of the mortgage and over time when their payment is highly likely to increase.
Pay Down Principal on Your Terms.
An interest only mortgage enables borrowers to pay down principal based on their schedule as opposed to on a scheduled monthly basis like with a fixed rate mortgage or ARM. Borrowers can elect to pay down principal during the interest only period of the loan, even though they are not required to. When you pay down your principal mortgage balance during the interest only period, your required monthly payment also goes down. The flexibility to pay down principal when you want to makes interest only mortgages well suited for individuals who earn a modest monthly salary but a significant annual bonus. Borrowers in this position benefit from the lower monthly mortgage payments but can use a portion of their bonus to pay down their principal loan balance.
Your Are Going to Own Your Home for a Shorter Time Period.
If you know that you are only going to own your home for the length of the interest only period, then an interest only mortgage may be the right option for you. That way you benefit from the lower monthly mortgage payment during the initial interest only period but you are not exposed to an increase in monthly payment and possibly interest rate at the end of the interest only period when the loan starts to amortize. Keep in mind that with an interest only mortgage, you do not pay down your loan balance during the interest only period and therefore build no equity in your home unless your property value increases.
Why Borrowers Compare Mortgage Rates on FREEandCLEAR
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More FREEandCLEAR Mortgage Resources
Our Interest Only Mortgage Calculator enables you to determine your initial monthly payment and worst case scenario for an Interest Only Mortgage using current interest rates
Review our comprehensive overview of how an interest only mortgage works including key loan program terms
Interest only mortgages are the riskiest type of mortgage. Borrowers should review the risks of an interest only mortgage to make sure they understand the serious downsides
Review the pros and cons of the three main types of mortgages (fixed rate, adjustable rate (ARM) and interest only) to select the mortgage type that is right for you