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Insights into the mortgage business

Political crisis avoided, but concerns remain regarding the Fed’s next step

Only a few weeks ago, housing economists believed they understood what would happen next. According to the consensus, the Federal Reserve raised interest rates in May but would stop doing so once inflation had stabilized.

Then, on May 26, the Commerce Department revealed that an inflation indicator that Fed officials routinely monitor surged in April, climbing 4.4 percent from a year earlier. The Personal Consumption Expenditures Price Index was at 4.2 percent in March when this measure was last taken.

A political crisis was avoided when President Joe Biden and House Republicans agreed to lift the federal debt ceiling, despite the worrying inflation report.

Even with that small amount of ambiguity cleared up, the average 30-year fixed-rate mortgage increased to 6.91 percent as of the week ending June 7 according to Bankrate’s nationwide survey of major lenders.

“While the bill to resolve the debt ceiling standoff offered a noticeable relief to capital markets, concerns linger over the Fed’s next rate decision,” claims George Ratiu, chief economist at Keeping Current Matters.

Although fixed mortgage rates don’t always follow the Fed’s moves, there is some correlation between the actions taken by the central bank, the overall economy, and how the mortgage market reacts.


The primary force influencing mortgage rates in the near future is inflation. The Fed will reveal its next step on June 14.

“While the debt ceiling deal got done, it remains to be seen what was accomplished other than averting a default and kicking the can down the road past the next U.S. Presidential election — it’s still unclear what impact the agreement might have on the economy,” says Sean Salter, a finance professor at Middle Tennessee State University. “Information from the FDIC’s most recent Banking Report indicates that the banking sector is still struggling to recover from recent failures, so I don’t see a decline in mortgage rates in the next several weeks unless the Federal Reserve takes an unexpected dovish action at its next rate meeting.”

How to get a mortgage

A mortgage is a type of loan designed for buying a home. Mortgage loans allow buyers to break up their payments over a set number of years, paying an agreed amount of interest. From the time you’re approved until you receive the funds (and close on the home purchase), the process typically takes six or seven weeks.

Because a home is usually the biggest purchase a person makes, a mortgage is often a household’s largest debt. Getting the best possible terms on your loan can mean a difference of hundreds of extra dollars in or out of your budget each month, and tens of thousands of dollars in or out of your pocket over the life of the loan. It’s important to prepare for the mortgage application process to ensure you get the best rate and most affordable monthly payments.

Here are quick steps to prepare for a mortgage:

  • Build your credit
  • Determine your budget and how much house you can afford
  • Set savings aside for both a down payment and monthly mortgage payments
  • Research the best type of mortgage for you
  • Compare current mortgage rates
  • Choose the right lender
  • Get preapproved
  • See multiple houses within your budget
  • Apply and get approved for a mortgage
  • Close on your new house


Credit score

Your credit score is the most important driver of your mortgage rate. Lenders have settled on this three-digit score as the most reliable predictor of whether you’ll make prompt payments. The higher your score, the less risk you pose in the lender’s view — and the lower rate you’ll pay. So to secure the best rate, take steps to improve your credit score before you apply for a mortgage.

Lenders reserve their most competitive rates to borrowers with excellent credit scores — usually 740 or higher. The median credit score to buy a home was 766 as of the fourth quarter of 2022, according to the Federal Reserve Bank of New York.

However, you don’t need spotless credit to qualify for a mortgage. You’ll need a minimum credit score of 620 for a conventional loan, and loans insured by the Federal Housing Administration, or FHA, have a minimum requirement of 580, although you’ll probably need a score of 620 or higher to qualify with most lenders. (While FHA loans offer competitive rates, the fees are steep.)


To score the best deal, work to boost your credit score above 740. While you can get a mortgage with poor or bad credit, your interest rate and terms may not be as favorable.

Find out more about the credit score requirements to buy a house.

Loan details

The kind of mortgage you choose can affect your interest rate, too, with shorter-term loans like 15-year mortgages typically having lower rates compared to 30-year ones. ARMs also have lower rates during the introductory period, but they can rise (or fall) over time once the first phase of the term expires.

The amount you borrow could also be a factor. For some time now, jumbo loan borrowers have gotten better rates compared to conforming loan borrowers.


How to compare mortgage interest rates today

With a mortgage likely one of the biggest components (and commitments) in your budget, it’s crucial to get the lowest possible interest rate. You won’t know what rates you qualify for unless you comparison-shop. Evaluating offers on Bankrate is especially smart, because our relationships with lenders can help you get special low rates.

Step 1: Determine what type of mortgage is right for you

When finding current mortgage rates, the first step is to decide what type of mortgage loan best suits your goals and budget. Consider your credit score and down payment, how long you plan to stay in the home, how much you can afford in monthly payments and whether you have the risk tolerance for a variable-rate loan versus a fixed-rate loan.

Step 2: Compare mortgage rates

Once you decide which mortgage type fits your needs, you can begin comparing current mortgage options. There’s only one way to be sure you’re getting the best available rate, and that’s to shop at least three lenders, including large banks, credit unions and online lenders, or by using a mortgage broker. Bankrate offers a mortgage rates comparison tool to help you find the right rate from a variety of lenders.

Keep in mind that mortgage rates change daily, even hourly, based on market conditions, and can vary by loan type and term. To ensure you’re getting accurate rate quotes, compare loan estimates based on the same term and product, and aim to get your quotes all on the same day.

Step 3: Choose the best mortgage offer for you

Bankrate’s mortgage calculator can help you estimate your monthly mortgage payment, which can be useful as you consider your budget. Look at the APR, not just the interest rate. The APR is the total cost of the loan, including the interest rate and other fees. These fees are part of your closing costs.


How to refinance your current mortgage

Now that rates are higher, few homeowners today can save money with a standard rate-and-term refinance.

Even so, refinancing your mortgage might still make sense in some cases. Perhaps you want to switch from an ARM to a fixed-rate loan before your variable rate resets. Maybe you want to ditch your FHA loan to eliminate mortgage insurance. Perhaps you need to refinance due to divorce or other circumstances. If you want to pay down your mortgage more quickly, you can refinance and shorten your term to 20, 15 or even 10 years. Because home values have risen sharply in the last few years, it’s also possible that a refinance could free you from paying for private mortgage insurance. The bump in value might allow you to refinance and tap your home equity to pay for home renovations, as well.

There are upfront costs associated with refinancing, including for the appraisal, so you’ll want to be sure the savings outpace the refinance price tag in a reasonable amount of time. Most experts say the ideal breakeven timeline is 18 months to 24 months.


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About the Author: Penulis Kreatif adalah Blog Seputar Peluang Bisnis Kreatif di Indonesia dan Dunia. Akan mengulas berbagai peluang bisnis secara kreatif dan mudah dipahami oleh pembaca

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