Higher Interest Rates
All experts agree that mortgage rates will rise by the end of 2014 and this upward trend will continue into 2015 as well. As the Federal Reserve is dropping its programs for supporting the economy, rates are inevitably going upward. The good news is that the increase will not be dramatic, at least for the time being. The rates on home loans are expected to fluctuate between 4.5% and 5.5% in 2014. They should reach the upper limit by the end of the year and continue to rise slightly.
More Adjustable-Rate Mortgages
The adjustable-rate home loans have increased their market share by about 3 times from the final quarter of 2013 to the first quarter of 2014. The hybrid loans, which have a fixed rate for an initial set period of time, are the most popular. This is because their interest rates are around 1% lower compared to those on fixed-rate loans. Home buyers want to tap on the lower interest rate and this is certainly beneficial, but they have to plan carefully for the future as they may end up paying very high interest eventually.
Cheaper Jumbo Loans
The non-conforming loans which are designed for financing higher-value properties are now cheaper than their conventional counterparts and this trend is expected to remain for the whole of 2014. The difference in the interest rate is around 0.4%, but it is significant given the large principal amounts of jumbo loans. You should definitely do the math to see if it is cheaper to get a loan for buying a luxury home rather than a regular single-family house.
Improved Accessibility
Even though stricter eligibility criteria are applied since January 2014, mortgages will be more easily accessible in 2014. This is because there is a considerably decline in the demand for home loans due to the rising rates. Fewer people want to refinance in this situation and lenders will do whatever they can to attract home buyers.
They are already setting lower credit score requirements. For example, you can qualify for an FHA loan with credit score as low as 600. Similarly, many lenders set lower minimum down payments on conventional loans. In some cases, they ask that you put just 5% of the property value down.
Homeownership Becoming Less Affordable
The increase in house prices in 2014 will not be considerable due to the growing inventory and the falling demand. It is expected to be between 3% and 5%. Still, this increase and the climbing interest rates will have a negative effect on housing affordability. The major negative impact comes from the income level which is not expected to increase considerably in 2014. Home buyers are advised to plan things very carefully in order to ensure that their mortgage loans will be affordable to repay.
By Cedric B Pitts
Major Mortgage Trends to Watch Out for in 2014
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