Mortgage Rates are Seasonal and Other Secrets

We’ve known for decades that home buying and selling follows seasonal patterns, but a recent study* from housing tech startup Haus found that mortgage interest rates also have their own pattern. They also uncovered several other tidbits about how and when the lowest rates are available. Here’s what they discovered and how it can help you:

Cyclical Rates

Mortgage interest rates are determined by several factors like the Federal Reserve’s target rate, the U.S. Treasury 10-year bond rate, and market competition. Home loan lenders have a little wiggle room within the general range of rates, allowing them to slightly raise or lower their offerings based on current demand. When demand is low, lenders will try to lower rates to drum up business. This past year when Treasury rates were falling to record lows, many expected mortgage rates to tank as well, but they didn’t actually follow right away. That’s “because there was such a flood of people looking to refinance that lenders couldn’t keep up,” explained Haus Chief Economist Ralph McLaughlin. “They couldn’t keep up with demand …[allowing] them to keep their prices relatively high.”

Of course, we know that 2020 was an exception to the normal year with 16 drops to record lows. Experts predict that rates will stabilize at their low levels this year as the post-pandemic recovery hopefully gets underway.

In their analysis of 8.5 million Freddie Mac mortgage originations from 2012 to 2018, Haus found that rates typically fall to their lowest point in January as home buying also drops off due to weather conditions and low inventory. On average lenders offer mortgage rates that are 20 basis points lower in January compared with the June to October period. February is the next best month for low rates. If you can find a good property during this time you can take advantage of the best rates as lenders try to entice more borrowers in during the slow season.

Discounts on Higher Price Ranges

The Haus study also determined that buyers within a certain price range get the best discounts on rates. Those with home price tags between $400,000 and $500,000 get an average discount of 23 basis points compared to cheaper loans.  It costs the lenders the same amount to originate both $100,000 and $500,000 loans but they make more on the more money on expensive loans so “in order to cover some of those fixed costs, lenders actually increase rates on the lower end of mortgage originations,” McLaughlin said. So, if you are considering a loan somewhere between $300,000 and $400,000, going with the pricier property will probably net you the better rate.

Credit Score and Debt Loan Effect is Limited

The survey also learned that a borrower’s debt-to-income (DTI) ratio actually doesn’t change their offered rate much. Buyers and refinancers with a “good” DTI under 36% only get rates 3-6 basis points lower than those with “high” DTIs of 43% or above.

Having a good credit score, though can make a bigger difference. Those with “good” credit scores (700-749) get mortgage rates that are 34 basis points lower on average than those with “bad” credit (650 or lower). However, striving for the top scores does not necessarily mean huge savings. Those with “very good” (750-799) or “excellent” credit (above 800) only get another 7-8 basis points lower than those with good credit.

The Takeaway

You are most likely to get the best mortgage rates in January and February, on a home between $400,000 and $500,000, and with good credit and a reasonable DTI. You don’t have to combine all those factors to get great rates but coupling at least a few of them likely save you thousands on you next home loan.

Call us today to get a great rate one a new mortgage refinance or purchase loan.

* Study:

What Happens If I Lose My Job During the Mortgage Process?

You are midway through the process of closing on a new home or a refinance mortgage. Then you lose your job. In today’s coronavirus crisis climate, plenty of home buyers and homeowners have faced this situation. Can the home loan go through or is it curtains for your new mortgage? While becoming unemployed during the loan underwriting process is much less-than-ideal, there may be some rays of hope.

Temporary or Permanent Job Loss

Sometimes income loss is due to furloughs. If you have a commitment from your employer as to when you will return to work or your income will resume, you may still be able to continue with your loan application. Be sure to let your lender know right away and provide them with a written letter from your employer with the applicable dates. You will probably have to be able to qualify for the mortgage payments on your reduced income. 

If your job has truly been terminated, the mortgage process will likely have to be put on hold until you find new employment. Lenders are looking for sources of stable income and their risk of loss is too great unless you have a reliable job. Taking on a new loan burden may not be in your best interest either; it may just add extra financial pressure to your situation.

Joint Application

If you are applying for a mortgage with a spouse or partner, you may be able to finish the process if you still qualify for the loan payments with his or her income alone. If not, you could reduce your price point for buying a home to account for that single income. Again, the best plan may be to back out of your purchase agreement until you find new employment.

Loss of Commission or Reduced Hours

If your income is dependent on commissions but sales have tanked recently due to coronavirus shutdowns or other economic downturns, you may be able to get a lender to average out your income over a year if it looks like conditions will improve soon.  Or with other jobs, it may be that your hours have gotten reduced or you have to take a pay cut due to a lack of business demand. In these cases, unless you can prove that this is part of a seasonal cycle, your mortgage loan may have to be declined.

And don’t count on slipping under the radar with your home loan if you have lost a job. Lenders will verify your employment at the beginning of the loan process and then again just a few days before the loan closing. If something changes with your job or income, talk to your lender right away. There may be more options if you lay out the situation immediately. While it is generally difficult for a mortgage loan to continue after a job loss, there may be some exceptions.

Call and talk to one of our mortgage professionals today and we can help you figure out if you still qualify.