Next to the purchase price of a home, the next biggest consideration for home buyers is typically their mortgage rates, that is, the interest rates they’ll pay on their mortgages. The interest rate plays a huge role in how much you’ll pay over the life of the home loan. For example, for a 30-year fixed-rate loan, the difference between 3.75% and 4.0% over the life of the loan works out to around $5,000 more for every $100,000 you borrow. That’s a big difference. It pays, then – literally – to know about mortgage rates and how to get the best rates. So let’s take a look at what home buyers in New Jersey need to know about mortgage rates.
Current Mortgage Rates and the Outlook
Near the end of January of this year (2022), mortgage rates were still near historic lows. “[T]he average rate for the benchmark 30-year fixed mortgage [was] 3.59%. If you’re looking to refinance your current loan, the average fixed refinance rate [was] 3.58%. . . . Meanwhile, the national average 15-year refinance rate [was] 2.90%.”
But will these low rates last?
“Most experts expect mortgage rates will rise in 2022. While rates hovered around 3 percent for much of 2021, they should be closer to 3.5 percent – and possibly higher – before the end of [the year]. . . . While that’s still low by historical standards, the record-setting days are probably behind us now, and the trend points upward from here.”
To find out more about mortgage-rates trends in New Jersey, contact a local agent at 855-966-DEALS.
Factors That Determine Your Mortgage Rate
But what, you may be wondering, actually goes into determining the rate you’ll bet on a mortgage? The main determining factors for individual mortgage rates are . . .
- Your credit score
- The amount you pay down
- Property location
- Amount of the mortgage loan and closing costs
- Type of loan
- Loan term
- Type of interest rate
Important Mortgage-Rate Considerations
That, then, brings us to two important considerations concerning mortgage rates . . .
Fixed Rate vs. Adjustable Rate
You can get a mortgage with either a fixed interest rate or an adjustable interest rate. “Mortgages have either fixed interest rates or adjustable rates. Fixed-rate mortgages lock you into a consistent interest rate that you’ll pay over the life of the loan. The part of your mortgage payment that goes toward principal plus interest remains constant throughout the loan term, though insurance, property taxes, and other costs may fluctuate.”
With an adjustable-rate mortgage (ARM), on the other hand, the interest can change over time. “An ARM usually begins with an introductory period of 10, seven, five or three years (or even one year), during which your interest rate holds steady. After that, the rate may change periodically. ARMs usually offer lower introductory rates. But your ARM rate can rise after the introductory period ends, causing monthly mortgage payments to go up – substantially, in some cases.”
There’s also the matter of discount points. These “are fees borrowers pay to reduce the interest rate on their mortgages. One point is 1% of the loan amount, which typically reduces the mortgage rate by 0.25%, although the reduction can vary. If you take out a loan at 4.5% interest, you might be able to pay a $2,000 fee to reduce the rate to 4.25%.”
The thing to keep in mind, though, is that paying discount points typically means spending “thousands of dollars upfront to save a few dollars every month. It takes several years for the monthly savings to add up to where they exceed the initial amount paid. This break-even period varies depending on the loan amount, the cost of the points, and the interest rate. It’s often seven to nine years. If you don’t plan to have the loan for that long, it’s a good idea to skip the discount points.”
Ways to Get Better Mortgage Rates
When it comes to what homebuyers in New Jersey need to know about mortgage rates, an important part of that is knowing what they can do to get better rates. Some solid steps you can take are . . .
Improving Your Credit Score
If your credits score is below760, then you should probably do whatever you can to get that score up, doing such things as paying down credit card balances and making all payments on time.
Paying More Down
“When you make a small down payment on a home, the lender considers you a higher-risk borrower than someone who makes a larger down payment.” And that’s why you’ll have to pay for private mortgage insurance if you pay less than 20% of the purchase price down. But “[e]ven if you can’t put 20% down, you can pay less for PMI with a larger down payment. On top of that, a larger down payment can actually get you a lower interest rate.”
Getting a Shorter-term Loan
Although you’ll probably pay more monthly, a shorter-term loan – say, a 15-year mortgage rather than a 30-year one – will typically get you better mortgage rates. “In mid-September 2020, for example, the 30-year rate was 2.87%, and the 15-year rate was 2.35%.”
Increasing Your Income
Understandably, the more you make, the less risk you will be for a lender. The main reason for this is that your monthly mortgage payment will then be a lower percentage of your monthly income. This debt-to-income ratio (DTI) factors hugely into your rate calculation.
Decreasing Your Debt
Similarly, decreasing your debt can help you get a better rate because it will also improve your DTI. And, besides, it’s usually much easier to decrease debt than to increase your income – and it will improve your credit score as well.
Shop Around for the Best Rates
If you’re a New Jersey home buyer, you should also know this about getting the best mortgage rates: all the experts agree that you should shop around for the best rates. Here’s what they say . . .
“Shopping around for quotes from multiple lenders is one [the] most crucial pieces of advice for every mortgage applicant. When you shop, it’s important to think about not just the interest rate you’re quoted, but also the other terms of the loan. . . . There’s always some variability between lenders on both rates and terms, so make sure you understand the full picture of each offer and think about what will suit your situation best.”
Talk to a New Jersey Agent
And your New Jersey can help you get a handle on that full picture with respect to the local market. Although not a loan officer or financial advisor, your agent can, nevertheless, provide some valuable assistance in this area. So if you’re a New Jersey home buyer and are concerned about mortgage rates, be sure to contact us today at 855-966-DEALS.