The Difference Between Annual Percentage Rates and Interest Rates

 If you are looking around for the best rates and options for a mortgage, then you are probably familiar with interest rates and annual percentage rate (APR). The majority of consumers think that these are one and the same, but they are not. They are related but that is as close as it gets.

What is the interest rate?

Simply put, interest rate is the percentage you pay to borrow the principal amount on your loan on an annual basis. The interest rate applies to the life of the loan, from the day it’s borrowed to the day it’s paid off. There are two types of interest rates, fixed or variable. When you get a fixed interest rate, the interest rate stays the same throughout the life of the loan. A variable rate varies and will change over the life of the loan. A variable rate is based on the prime rate and when the prime rate changes, so will your variable rate. This means that the payment on your variable rate will go up or down when the Fed moves to change the rate.

What is APR?

This can be a bit confusing but just remember that the interest rate is what the lender will charge the borrower for the loan. The annual percentage rate is the total price of the loan expressed as a percentage. The annual percentage rate will include lender fees as well, so the APR will be the same as the interest rate if the loan does not have any additional fees. If the loan does have additional fees, then the APR will be higher.

Why do you need to understand both APR and interest rate/?

When you are shopping for a loan, you want the lowest rates. Most consumers look for the lowest interest rate but if they do not include the APR rate, they will not get a full picture of the amount they will owe. The interest rate only calculates the cost that it will be to borrow the principal, but the APR will give you the cost of the total lifetime cost of the loan. For example, if you borrow $15,000 to be paid over 72 month at an interest rate of 7.99% with no origination fees, the APR will also be 7.99%.

How are interest rates calculated?

When determining your interest rate, a lender will look at your credit history, application information and the terms you selected. This means that the better your credit score is, the better interest rate you will be able to obtain. So getting your credit score the highest you can get it will get you the lowest rate. To ensure that you have a healthy credit score, you need to pay your loans and bills on time, do not use all of your credit that is available, pay any debt you have down, and don’t apply for a new loan or credit cards right before you are applying for a mortgage.

How is APR calculated?

When APR is calculated, a lender will take into consideration your interest rate, finance charges, and fees you will have on your loan. Remember that the APR can be affected by the origination date and your payment’s due date.

All financial decisions are a big part of your life, so you need to make them wisely. Remember to get all of the facts before you decide to borrow. If you are working with a real estate agent, they can refer you to a lender that is right for you.

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Is Today’s Current Housing Market A Challenge Or An Opportunity For Homebuyers?

COVID-19 caused havoc on the housing market, especially due to health scares and stay-at-home orders.  During the pandemic home buyers were up against low home inventory which caused bidding wars.  Even though we are still seeing these challenges, many professionals in the industry say they are now a buyer’s opportunity.  In today’s current the inventory is still low but buyers are not as eager due to the higher mortgage rates. 

The low inventory is still a challenge because of underbuilding since the market crash in 2008. The current moderating of demand is slowing the pace of home sales which is starting to even out so builders are able to catch back up. For the buyer, this means there are more options to choose from.  Good news, as this will also lead to fewer and fewer bidding wars as home buyers have more options.  According to the National Association of Realtors (NAR) Realtors Confidence Index bidding wars are letting up month-over-month.   The average number of homes sold between April 2022 – June 2022 are as follows: April 5.5, May 4.2 and June 3.4.   Those that have been outbid for the past two years can see the light at the end of the tunnel.

If you are in the market for a new home, it is still a good idea to consult with a local sales agent who can guide you through the process.  With an agent, you will definitely make the strongest and best offer upfront.  Partnering with a real estate agent will just ramp up your home buying experience.

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Factors Affecting The Current Bank Lending

 Like everything else, the commercial real estate business has seen changes due to the pandemic in the past two years. Add another catalyst to the mix, global inflation and we have a whole new ball game. This fall we have seen a change from the previous fall in interest rates.

Commercial real estate investors and lenders are viewing underwriting in a different perspective than times past. This is due to how investors are working with debt. Currently, the cost of debt is higher making the old on commercial real estate weaker than it was six to twelve months ago.

The Commercial real estate industry is hesitant because this certain rate environment has not shown up in a long time. The competitiveness of the market has also slowed down because a lot of the pent up demand that was seen after the worst of the pandemic is now gone.

Buyers and sellers are working at a slower pace than just six months ago. Transactions are being thought through more with the change in interest rates and capital markets. In fact, many commercial real estate lenders are stepping away altogether.

Inflation has also slowed things down. Labor cost and material cost have seen an extreme rise in costs . This has a big impact because when both lenders and investors look at future cash flow, these higher costs can dampen the profit margin. The Southeast market has actually seen double-digit rent growth already from this time last year.

When it comes to international affairs, interest rate hikes and the potential of a recession the capital markets are uncertain causing an upset in capital markets. This has become a challenge for lenders and their ability to lend.

There has also been a change in the demand for many lending products. Investors are looking for more long-term and fixed-rate lending products. The drastic shift can be blamed on the fast-rising interest rates.

As for the state of the current commercial real estate lending market, lenders still have maintained underwriting standards and the leverage has not gone completely unhinged. Structures are still sturdy and there is still a lot of equity capital in deals today. Last year saw a record year due to the floodgates opening after the pandemic restrictions. We are in a more measured environment but that does not mean it is not an active market.

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Truth and Myths About Improving Your Credit Score

 One of the most important factors for your financial health is your credit score. If you do not have a good credit score, you are more than likely going to have a hard time obtaining a mortgage. So before you think about buying a house, here are some truths and myths about how you can improve your credit score.

1. Truth: Late payments can hurt your credit score

Payment history is a big part of your credit score. In fact, payment history makes up around 35% - 40% of your credit score. Paying bills late is a crime when it comes to your credit health. If you are having a hard time remembering to pay a bill, set an account alert on your phone or calendar to remind you to pay a bill.

2. Truth: You should always use credit cards responsibly

Focus on your credit behavior when calculating your credit score. Be responsible with your credit history because this can improve your credit score. Do not spend over your means and try to pay the balance in full each month.

3. Truth: It’s important to stay below your credit card limits

You should not max out your credit cards. This can raise a red flag about your ability to handle debt. Do not use over 30% of your available credit to avoid this. If you have a limit of $1,000 on your credit card, you should not have a balance over $300 month to month.

4. Myth: You shouldn’t review your credit report

This is not true! It is recommended to obtain your credit report once a year.  Keep in mind: by federal law, you are entitled to one free credit report per year from each of the three credit reporting bureaus. There are two kinds of reports that can be pulled for your credit. A soft credit is when you check your credit or a creditor checks your credit to be preapproved. A hard credit report is for when you apply for a new line of credit. It is very important to understand your credit so you can improve it and make sure there are no outstanding balances you have missed.

5. Truth: Having no credit is worse than having bad credit

Again this is a myth because creditors want to see how you handle your debt. Having multiple credit lines is okay however you need to pay on time and keep your balances low. If you have no credit, think about opening a small credit limit. Never open several credit lines one after the other.

6. Myth: I should close credit lines I’m not using

Closing old accounts that you might not be using at this time, can negatively affect your credit score. Keep the line open with no balance, this is actually more positive than removing it.

Remember your credit score will be taken into consideration when you are getting approved for a mortgage. A higher credit score will allow for a better interest rate. If you get a better rate, you will be able to have a smaller monthly payment.

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A Golden Opportunity For Sellers This Spring

 The current housing market is booming for sellers. Timing is crucial with the sale of your current home and the purchase of a new one. As a seller, you will want to get the best of both worlds. Listed are four reasons why this is the best time for you to sell your home.

1. The Number of Homes on the Market Is Still Low

The past year and currently the housing inventory is low, low, low. This is great news if you are a home seller. Buyers are fighting for what little is currently on the market. Buyers are waiting for homes to go on the market in order to get to them first. Your home will be the center of attention when it comes on the market. Realtors will price your home according to the market value and will get your home sold quickly.

2. Your Equity Is Growing in Record Amounts

CoreLogic's Homeowner Equity Insight reports that current  homeowners are sitting on record amounts of equity thanks to recent home price appreciation. The report finds that the average homeowner has gained $55,300 in equity over the past year. With this amount of equity, you will be able to make a move in this hot market.

3. Mortgage Rates Are Increasing

While mortgage rates have been slightly rising this year, they are still lower than they have been. Freddie Mac shows that the current 30-year fixed mortgage rate is at 3.85%. “For homebuyers, we believe that borrowing costs will likely rise with the increase in mortgage rates,” according to Doug Duncan, Senior Vice President and Chief Economist at Fannie Mae.

4. Home Prices Are Climbing Too

With the demand from buyers and lack of inventory, home prices are skyrocketing. It is predicted they will keep rising if this imbalance continues. If you are thinking of selling, now is the time to sell. Get ahead of the curve by selling and purchasing now before the prices climb even higher.

Remember if you are thinking of selling, contact your local Realtor. A local Realtor can help you price your home right and get it sold in no time.

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The Cost of Buying a Home

Buying a home is one of life's big moments and is a huge financial expense. If you are in the market for a home, then you will want to factor in all the costs associated. Here are the true costs of owning a home.

A home inspection is a cost that you will occur and if there are any issues with the home, you will either negotiate with the seller or have to come up with the money to fix the problems. A detailed, in-depth home inspection is a good idea to get on the home you are going to purchase.

When you purchase a home, you will need to bring closing costs to the table. Closing costs include title fees, lawyer fees, contract fees, and more. Future homeowners need to realize the listing price is not the only expense but closing costs will be added on.

Potential homeowners will need to consider monthly utility expenses. Operating home expenses can be a surprise to first-time homebuyers. Some of these expenses, just to name a few, include heat or cooling, appliances, lights, gas, water, trash and recycling.

Along with a mortgage monthly payment, you will need to pay homeowner's insurance. A homeowner's insurance agent can explain what is included in these monthly costs. The homeowner's insurance premiums are held in the escrow account and paid each year. They are collected monthly on top of the mortgage monthly payment.

Moving costs are many times looked over. These costs need to be considered whether your move is local or far. These costs can include time off work, packing, loading and unloading, and in some cases storage facilities and packing supplies.

When you live in a neighborhood with a homeowners association there will be HOA fees that are due each year. These will be paid either monthly or annually. You will need to factor this cost into your budget.

If you are in the market for a new home, using a Realtor is a smart choice. Remember to leave the house shopping, buying, and selling to the professionals.

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Five Signs To Look for To Know It’s the Right Time To Buy a Home

 

Today’s housing market is booming, sales are up, inventory is low, and mortgage rates are low. This is a competitive market for a buyer. Timing is everything and you want to make sure that what’s going on in the market and in your personal life makes this the right time to buy. There are many factors to consider when purchasing a home. If you are having a hard time deciding if now is the time, consider these five factors to help with your decision.

1. Your lifestyle has changed – or is about to

There are many seasons in our lives that can sway our decision on buying a home. Examples are having a baby, moving to a desired location such as the mountains or the beach, or downsizing as empty nesters. Big changes in our lives can be both planned and unexpected.

It is always a good idea to reevaluate your current living situation when big changes are about to happen. Before making the decision take the time to go over your needs and your budget to make sure they are in sync.

2. It’s the right time of year for you

According to Rocket Mortgage®, the prime time for buying and selling a home is in the spring and summer. This is when the market usually has the most inventory for sale and buyers out looking for a home. This might be the typical time of season to look if you are a buyer, but it might not line up with what is going on in your personal life.

Typically the spring and summer seasons are the busiest because growing families are looking to settle in a new home before the next school year begins. If you are an empty nester and can wait, the fall or winter might be your best time to purchase.

3. Mortage rates are low

The current market has seen record-low mortgage rates. Right now, you can purchase a home at a higher listing price because the monthly payments might fit your budget.

Interest rates play a big role in the monthly cost. For example, if you want to have a payment of around $1,500 a month, in today’s market you can purchase a home for much more with the low-interest rates. With today’s rates, you could afford a home for around $357,000 on a 30-year-fixed with 20% down. If the rates go up to 3.75% you will only be able to afford a home with a listing price of $328,000.

4. You’re financially prepared

No matter what season it currently is or how low the mortgage rates currently are, if you are not financially ready it is not your time to buy. Your financial profile plays a big part in the purchase of a new home. This includes your credit score and debt and income.

Make sure you can afford to take the leap into homeownership without too many risks. It is never fun to be “house poor.” When determining if you can afford to purchase a home, consider the cost associated with buying a home. These include home improvements, unexpected repairs, home maintenance, insurance and property tax.

5. You’re emotionally prepared

Purchasing a home is a big life-changing event. The home-buying process has many facets and you will want to have a good lender on your side. A mortgage lender can help you with all of your questions on loan types, calculating payments and managing your mortgage.

Educating yourself and have a professional by your side will help make this process less stressful for you. Both a Realtor and a mortgage advisor can help you learn the mortgage basics and help you determine what you can afford and where is best for you to purchase a home.

Remember before you decide to purchase a home, go to the experts. Choosing the right experts to go along with you during the process will help you reach your goal faster and more confidently.

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2021 Will See Another 7% Surge In US Home Prices

 

Home prices are rising the fastest we have seen in 15 years. According to Goldman Sachs, US home prices will rise another 7% in 2021. In fact, Goldman upgraded its 2021 house-price appreciation forecast to 6.8% from 4.7% previously.

January 2021 saw the fastest rate since 2006 stemming from the low-interest rates and low inventory. The S&P CoreLogic Case-Shriller house price index increased 11.2% in January 2021 year on year. James Orlando, senior economist at TD Economics gives credit to the pandemic. Since spending more time at home during the pandemic, people want to improve on their living situations. Now more than ever, we are seeing more buyers entering the market.

“Underwhelming supply appears to be the primary driver of continued high levels of house price appreciation,” noted Apurva Gundaria and Marty Young who lead Goldman Sachs.

“In our view, this supply crunch is driving another leg up in home prices,” the analysts said. “Though mortgage rates have backed up in recent weeks, they still remain below their pre-pandemic tights and the backdrop for housing demand remains supportive.”

If you are in the market for a new home, now is the time to take advantage of the low-interest rates. Be sure to purchase through a local sales agent who can help you navigate this aggressive current market.

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