Mortgage Rates Surge Into The New Year

Mortgage Rates Surge Into The New Year

 Mortgage Rates Surge Into The New Year — But Today's Rates May Seem Dirt-cheap Before Long 

Mortgage rates surge into the new year — but today's rates may seem dirt-cheap before long The new year is bringing homebuyers and refinancing homeowners something they've been dreading, but expecting: surging mortgage rates. The average rate on America’s most popular home loan has risen to its highest level in more than a year, a widely followed survey shows. But even though the numbers are going up, mortgage rates remain near historic lows — at least for now. 30-year fixed mortgage rates chainarong06 / Shutterstock The average interest rate on a 30-year fixed-rate mortgage jumped to 3.22% last week, from 3.11% the previous week, mortgage giant Freddie Mac is reporting. One year ago, the Freddie Mac survey had 30-year fixed-rate loans averaging 2.65%, which is still the all-time low. “Mortgage rates increased during the first week of 2022 to the highest level since May 2020,” says Sam Khater, Freddie Mac’s chief economist. “With higher inflation, promising economic growth and a tight labor market, we expect rates will continue to rise.” Though previous waves of COVID-19 helped keep a lid on rates, that hasn't been happening as the omicron variant spreads wildly throughout the country. But while mortgage rates are higher than they've been in a long time, they're still below where they were in the pre-pandemic days of late 2019 and early 2020. 15-year fixed-rate mortgages The interest rate on a 15-year fixed-rate mortgage averaged 2.43% last week, up from 2.33% the previous week, Freddie Mac says. Last year at this time, 15-year mortgages were averaging 2.16%. Remember that Freddie Mac’s numbers are indeed averages, meaning the rates being offered can be higher — or lower. Some lenders are currently advertising 15-year refi loans at 2% or less. The shorter-term mortgages are popular among refinancing homeowners who are willing to take on a higher monthly payment by going from a 30-year mortgage into a 15-year. In exchange, you pay much less interest over the life of your loan 5-year adjustable-rate mortgages Rates on five-year adjustable-rate mortgages (ARMs) averaged 2.41% last week, unchanged from a week earlier. One year ago, the loans were averaging 2.75%. Story continues ARMs typically start out with lower rates than fixed-rate mortgages. But after a period of time, an ARM starts to adjust — that is, the rate moves up or down in sync with the prime rate or another benchmark. The most popular adjustable-rate loan — the 5/1 ARM — offers five years of fixed interest before adjusting. If you took out one of these variable-rate loans to finance your home purchase, you might want to consider refinancing into a more stable fixed-rate loan now that rates are rising. How high will mortgage rates go this year? Boryana Manzurova / Shutterstock Last year at this time, the average 30-year fixed mortgage rate fell to its lowest point in history. “Since then, despite the effects of the delta and omicron variants, the job market added more than 6 million jobs, the economy is expanding, and the housing market continues to outperform,” says Nadia Evangelou, senior economist and director of forecasting for the National Association of Realtors. Also, the Federal Reserve is slowing its recent buying binge in Treasury bonds and mortgage-backed securities, plus the central bank anticipates it will hike interest rates three times this year. All of those factors are pushing up the interest on Treasury bonds. The bond market, which often portends the direction of mortgage rates, is signaling that home lending rates will continue to climb, Evangelou says. The Realtors' trade group predicts the average 30-year mortgage will be no less than 3.7% by the end of the year. Another industry giant, the Mortgage Bankers Association, expects the 30-year rate will reach 4% toward the end of 2022, with further increases coming next year. How to find low mortgage rates in 2022 fizkes / Shutterstock If you’re ready to jump into the mortgage pool before it gets too cold, you’ll want to do just a little warmup to make sure you’re getting the best rate. Studies from Freddie Mac and others have found that comparing offers from at least five lenders can maximize your savings on a refi. Shopping around is key, but so is a strong credit history. Review your credit score, which you can easily do for free. If your score is lower than you'd hoped, you may want to work on it before revealing it to picky lenders. If you’ve accumulated high amounts of debt during the pandemic, you might consider rolling those credit balances into a lower-interest debt consolidation loan — to reduce your interest costs and potentially eliminate your debt faster. If a mortgage refi is off the table, there are other ways to lower the cost of homeownership. When it comes time to buy or renew homeowners insurance, a bit of comparison shopping could help you find a lower rate on your coverage. This article provides information only and should not be construed as advice. It is provided without warranty of any kind.

Down 67% From Peak, Rocket Mortgage Stock Is No Bargain 

SUN VALLEY, ID - JULY 08: Dan Gilbert, founder and chairman of Rock Ventures and Quicken Loans ... [+] attend the Allen & Company Sun Valley Conference with Jennifer Gilbert on July 8, 2015 in Sun Valley, Idaho. Many of the worlds wealthiest and most powerful business people from media, finance, and technology attend the annual week-long conference which is in its 33nd year. (Photo by Scott Olson/Getty Images) Getty Images Last March, I argued that Rocket Mortgage — a Detroit-based originator and seller of home loans — was under-valued. Since then, the stock has lost 67% of its value. On March 2, when I wrote that 39.7% of its shares were sold short, Rocket stock spiked to $43. By January 7, its shares had dropped to about $14.20. I do not know why the stock jolted up last March — but it could have been a short squeeze. I think that many who had bet against the stock have since taken their profits. The most recent report — on December 15 — notes that short-interest was 10.3% of its float — up 7.1% from the month before, according to the Wall Street Journal. Is the stock even more under-valued now or should you bet it will drop? I would avoid the stock at current levels. Last March, I cited its expectations-beating growth, special dividend, and below-target stock price as reasons the stock would rise. I also singled out the risk of rising mortgage rates — which have risen from 2.65% (30 year fixed rate) in January 2021 to 3.22% this month, according to CNN — as a possible damper on its stock. With mortgage rates expected to go higher, the best hope for Rocket bulls is that it can grow much faster than investors expect. But those higher mortgage rates will make that very difficult. (I have no financial interest in the securities mentioned). Rocket’s Disappointing Third Quarter Report Rocket — a provider of personal finance and consumer technology brands including Rocket Mortgage, Rocket Homes, Rocket Loans, Rocket Auto, Rock Central, Amrock, Core Digital Media, Rock Connections, Lendesk and Edison Financial — has grown into the U.S. Mortgage market leader, according to the Wall Street Journal. During the pandemic, it grew very quickly. As the Journal reported, Rocket “doubled its mortgage originations in 2020 and grew them by another third through last fall. It is now the biggest mortgage lender in the country, making nearly as many home loans as Wells Fargo & Co. WFC and JPMorgan Chase & Co. JPM combined.” Sadly for investors, Rocket’s revenues and profits fell substantially in the third quarter of 2021. According to Inman, its revenue fell 32% to $3.11 billion while net income declined 53% to $1.39 billion. The problem facing Rocket is its dependence on its more profitable refinancing business which suffered as higher interest rates lowered demand and margins. While Rocket Mortgage’s closed loan origination volume was down slightly to around $88 billion, less profitable purchase loans constituted a greater portion of its assets and that cost Rocket considerable profitability — with its gain on sale margin declining from 4.52% to 3.05%, noted Inman. Rocket was excited about these results. As Jay Farner, Vice Chairman and CEO of Rocket Companies, said in a statement, "We had an excellent third quarter...Our core mortgage business exceeded the high end of guidance for closed loan volume and gain-on-sale margin, while achieving record purchase volume.” Rocket declined to provide revenue and earnings guidance for the fourth quarter — instead it sets loan volume targets. As CFO Julie Booth told investors on November 4, “[We expect] our full year 2021 closed loan origination volume to exceed $350 billion, exceeding the previous record of $320 billion achieved in 2020 by more than 10%.” How Rising Mortgage Rates Will Reduce Demand When mortgage interest rates rise, demand for mortgages and mortgage refinancing goes down. That is likely to be bad for Rocket’s revenues and profits unless it can generate enough business from other services that are not so dependent on dropping mortgage rates. Experts forecast rising rates due to higher inflation, promising economic growth and a tight labor market. Lawrence Yun, chief economist at the National Association of Realtors, expects the 30-year fixed mortgage rate to end 2022 at 3.7% while Jacob Channel, LendingTree's TREE senior economic analyst, predicts rates of nearly 4%, according to CNN. Demand for purchase mortgages and refinances is down and likely to fall. Joel Kan, MBA's associate vice president of economic and industry forecasting, said “Refinance demand continues to dwindle, as many borrowers refinanced in 2020, and in early 2021, when mortgage rates were around 40 basis points lower,” noted CNN. With strong tailwinds pushing — the milder Omicron variant and a resilient economy — George Ratiu, Realtor.Com's manager of economic research said, “I expect the upward momentum in Treasury rates to continue to drive mortgage rates higher.” Demand for mortgage refinancing will plunge. As the Journal wrote, “Refinancings are expected to plummet across the industry by nearly two-thirds” in 2022. Could Rocket Grow Faster Than Investors Expect? Rocket is trying to diversify its sources of revenue to grow faster than these negative trends would suggest. Rocket — which gets “almost all of its revenue from mortgages” — has been more aggressive than its peers in trying to expand beyond refinancing. Here are three examples: Rocket Homes, a Zillow Z -like listings platform meant to connect it to would-be home buyers, was launched in 2018; Rocket Autos connects car buyers to dealers; and Truebill, a personal finance startup for splitting bills and canceling subscriptions, was acquired by Rocket last month, wrote the Journal. If you are worried about Rocket’s future trajectory, you have to assess whether Dan Gilbert is the right source of vision. Gilbert, who founded the company in 1985, is now chair of Rocket — and with his wife controls 79% of the voting power of Rocket shares. He also owns the Cleveland Cavaliers. Rocket — which bids itself as a fintech — hopes to be valued as such. The Journal noted that Rocket claimed to have 153 million visitors to its platform in 2010 — 61% more than in 2019. Rocket aspires to turn its Rocket Homes visitors and the 2.5 million it expects to add through its Truebill purchase to become Rocket customers when they purchase a house, according to the Journal. Analysts are not banging the drums to buy Rocket stock. According to CNN Business, 17 analysts who cover the company have a ‘hold’ rating. And “14 analysts offering 12-month price forecasts for Rocket Companies have a median target of $17.25” — about 22% above its current price. Just because Rocket shares are 67% below their peak, it doesn’t make them cheap. With rates on the rise, I don’t see any tangible revenue growth catalysts in 2022.

Ways To Pay Off Your Mortgage Faster 

It’s paradoxical how owning a home might make you feel more secure. But it may also be a constant source of worry, particularly if you still have a hefty mortgage payment each month. For some, having a mortgage is simply a part of life. But for others, it can be an encumbrance, especially once you realize that your interest expense might cost as much as the home itself over the course of a 30-year loan. Whether your goal is becoming mortgage-free or you just don’t want to pay interest to your lender for any longer than necessary, there are some effective ways you can pay off your mortgage faster. Make bi-weekly payments instead of monthly payments Many of us get paid weekly or bi-weekly (meaning every two weeks). A standard mortgage has twelve monthly payments. While we tend to think of a month as having four weeks, there are actually around 4.25 weeks in a month. This seemingly small discrepancy in time can work to your advantage, if you switch to making bi-weekly mortgage payments instead of monthly mortgage payments. At the end of the year, you’ll find that you’ve made thirteen mortgage payments instead of just twelve. Over the course of a 30-year mortgage, switching to bi-weekly mortgage payments may shave some time off the length of your mortgage, depending on your mortgage balance and interest rate. You may potentially save thousands of dollars in interest expense as well.[i] Make an extra payment each year Some lenders may charge extra fees for customized payment plans or may not provide an easy way to make biweekly payments. In this case, you can simply make one extra payment each year by putting aside money in a dedicated account. If your mortgage payment is $2,000, you could fund your account with $40 per week, or $80 every two weeks, to save for an extra payment each year. If you use this method, your savings won’t be as dramatic as the savings you might see by making bi-weekly payments because the extra payments don’t reach your mortgage balance as frequently. If you have any spare cash, you might consider raising the amount that you save each week. Round up your payments Mortgage payments are almost never round numbers. Yours might look like $2,147.63, for example. Consider rounding up your payment to $2,175, $2,200, or even $2.500. Choose an amount that won’t break the bank but can put a dent in the balance over time. Depending on how much you round up your payment, this method may shave some time off your mortgage and potentially save you money in interest expense. The key is consistency. Making one extra mortgage payment and then never making any extra payments again won’t make much difference, but sending a little extra with every payment may help make you mortgage-free a little faster. Pro tip: Before you make any drastic moves to pay off your mortgage, first be sure that your emergency fund is well established, that your high-interest credit cards are paid off, and that you’re contributing enough toward your retirement accounts. The average rate of return on some types of accounts may be higher than the savings you might realize on mortgage interest. It’s possible that any extra money is more wisely put away elsewhere. [i] https://www.Mortgagecalculator.Org/calculators/standard-vs-bi-weekly-calculator.Php#top

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