Mortgage rates: What a Fed rate hike would mean for homeowners

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Bad news for home buyers mortgage rates are now at their highest level in two years and with the fed promising interest rate hikes this year is now the time to lock in a mortgage here to talk about it is melissa cohn regional vice president at william ravis mortgage melissa it’s good to see you again um so you’re based here in new york city and i’m curious what

You’re seeing right now is there that rush to lock in mortgage rates and what kind of mortgages are the most popular at the moment i’m definitely mortgage rates have gone through the roof since the beginning of the year 10-year treasury ended 2021 at a 1.50 percent and was trading at a 1.86 percent the last time i looked at that causing mortgage rates to go up

Anywhere from a quarter to three-eighths of a percent which has been a pretty strong increase in such a short period of time the 30-year fixed rate is still probably the most popular mortgage out there but 30-year fixed rates are still well below or below three and a half percent i should say no longer well below but people are also looking at these long-term

Adjustables now you know for example you can still lock in on a 10-year adjustable at a rate of you know two and three quarters percent which can be a significant savings on a monthly basis between that and a 30-year fixed and if you’re not going to be in your home for the rest of your life why not take advantage of the long-term adjustable and keep the savings hey

Melissa it’s karina thanks so much for coming on a lot of homeowners have locked in rates now sort of three and a half percent you know good majority so won’t that disincentive disincentivize them from trying to sort of refinance their loans at this point well first of all there are a lot of people who were not able to refinance over the course of the past couple

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Of years people whose jobs were uh sidelined due to the pandemic and didn’t have the income to qualify for the financing who are now as their income has been restored ready to refinance plus people refinance for more reasons than just raid you know do they want to tap into some of the incredible equity that they’ve gained on their properties over the course of

The past two years you know do they need to consolidate debt do they need to take money out for home improvement or for student loans so there are many reasons to refund other than just trying to get a better rate what about you know one one way people try to do that is they’ll they’ll take a mortgage with points right to sort of buy down the rate when is that

A good idea so paying points is a good strategy for someone who’s purchasing because your points are tax deductible in full the year that you purchase if you’re paying points on a refinancing you don’t get to take the full tax deduction you have to amortize it over the life of the loan so if it’s a 30-year loan you’re only going to get 1 30th of the deduction on

Paying the points but if you do pay a point your rate’s going to be a quarter percent lower or two points your rate is a half a percent lower and if you really think that you’re going to be in your home for a long period of time you may want to consider doing it and then can you explain to us the difference between a home equity line of credit and a home equity

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Loan and which makes more sense for who at which point so the vast majority of lenders today pretty much just offer home equity lines of credit or what we call a heloc and heloc is a line of credit it’s a second mortgage against your home um that’s interest only for the first 10 years the rate is set based on a percentage over the prime rate now the prime rate

Today is at three and a quarter percent but when the fed starts raising rates the prime rate will go up um and so as the prime goes up that rate will go up but it’s an interest-only line of credit that you can borrow and pay back as you see fit for a 10-year period and then at the end of the 10 years there’s generally a 20-year repayment period a home equity

Loan would be a fixed-rate loan that would be a second mortgage where you would borrow or set amount with a set monthly payment and those rates are generally pretty significantly higher than they are for a first mortgage so if you’re taking a home equity loan which is sort of good to have handy availability to the equity in your home it’s a good product to have

You really need to borrow the money and you think you’re going to have it outstanding for a period of time you should probably consider just doing a cash out refinancing of your home and locking into a rate today you know melissa it’s confusing for some people because the fed when they raise short-term interest rates that doesn’t automatically mean mortgage rates

Are are going to go up i know mortgage rates are tied to the 10-year treasury and they’ve been rising in anticipation of what the fed is going to do so where do you see mortgage rates sort of tapping out have they peaked you think for now even when the fed raises interest rates later this year i mean i think that the markets have been extraordinarily volatile

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And reacted pretty violently to the anticipation of the fed raising rates sooner versus later i even saw an article today about maybe the fed won’t raise a quarter point maybe it’ll be a half point one and done type thing um and so the bond market has reacted and bond yields have gone way up but when the fed actually raises rates fed funds don’t have any direct

Correlation to the mortgage rates it’ll change a home equity loan because when fed the fed raises fed funds the prime rate will go up lock step with the fed funds rates but the bond market may actually rally once the fed actually acts and raises rates or you know stuck purchasing bonds and you know there’ll be there’ll be a relief rally we’ll be happy oh my god

We’ve done it and you know there’s a good chance that bond yields could moderate again you know it’s very hard to think that the fed really wanted 10-year treasury yields to go from 1.5 to nearly two percent in a two-week period it’s just it’s too much too fast yeah it has been a wild ride for sure we’ve seen this story though before melissa of cohn mortgage

That’s right good to see you thanks for thanks for joining us today

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Mortgage rates: What a Fed rate hike would mean for homeowners By Yahoo Finance