Understanding Mortgage Rates: Navigating the World of Home Financing

Understanding Mortgage Rates: Navigating the World of Home Financing

Today's mortgage rates aren't the "highest they've ever been." They're higher than in recent years, but in 1979, 30-year mortgage rates were 12.9%.

In October of 2022, mortgage rates peaked past 7%, more than ever seen in the 2010s. More people are renting now because the real estate market isn't making it easy for consumers to buy.

You might assume there's no drawback for property owners. Unfortunately, real estate investments are also more costly.

Sensibly, a real estate investor may wish to be discerning about how they buy properties. Below are a few investment tips to help would-be landlords navigate home financing.

Types of Mortgage Rates

Potential property owners can opt for fixed-rate mortgages or an adjustable-rate mortgage (ARM). Fixed-rate mortgages stay at a constant interest rate throughout the loan term.

This is both good and bad. The good news is that if interest rates are low, your rate stays low. The bad thing is the opposite-high rates mean interest rates will remain high.

However, you're protected from sudden interest increases regardless. An ARM has an initial fixed-rate period-which may decrease or increase depending on market conditions.

The disadvantage of an ARM is that you're at the mercy of the real estate market. Interest rate changes can happen between months or years.

It's helpful to know current mortgage rates because you can decide whether it's worth getting a new investment property. But knowing what kind of mortgages there are is beneficial.

Combine your knowledge of current interest rates with mortgage types. For example, you should consider a fixed-rate mortgage if rates are low.

Factors That Affect Mortgage Rates and Loan Amounts

Various factors determine how much your mortgage and mortgage rates are. The primary deciding factor is the economy.

Right now, mortgage rates are high because the Federal Reserve is trying to battle inflation via high-interest rates. A large part of why there's inflation is thanks to the pandemic.

Market volatility, or the rate at which a market changes, is another factor. It helps to watch the news and market trends to guess mortgage rates. Your credit score makes a world of difference for your interest rates.

A high credit score usually means you can expect lower rates. Market valuation (or fair market value) is how much your property would sell for in normal real estate market conditions.

Market valuation may not decide your mortgage rates, but it does establish how much you can borrow to buy the property. You can find the FMV by getting the property appraised.

An appraisal specifies the real estate value of a given location by accounting for:

  • Property size
  • Location
  • Amenities
  • Upgrades.

What Are Your Real Estate Investments Worth?

Mortgage rates and the loan amount depend on variables like mortgage type, the economy, and real estate value. The latter is important because an appraisal can determine how much lenders will give you.

But what about administration and upkeep? Are your real estate investments worth hiring the best to manage them?

PMI Santa Cruz is part of a 20-year-old franchise offering full-service management and real estate services. Contact us today if you'd like a consultation!