Blog Layout

Surging mortgage rates prompt borrowers to leave no stone unturned Temporary rate buydowns and down payment assistance programs are growing in popularity

DDA Mortgage • October 31, 2022


Mortgage rates have surged firmly above the 7% mark, making alternatives such as temporary rate buydowns and down payment assistance programs more popular, according to loan officers. 

Borrowers are now seeking options to reduce their initial mortgage payments while hoping that rates will decline enough to warrant a refinance in the next few years.


The latest weekly survey data from Freddie Mac shows the 30-year fixed-rate mortgage rose 14 basis points from last week to 7.08%, accelerating its upward trajectory. A year ago at this time, rates averaged 3.14%.


“The 30-year fixed-rate mortgage broke 7% for the first time since April 2002, leading to greater stagnation in the housing market,” Sam Khater, Freddie Mac’s chief economist, said in a statement.


According to Khater, “many potential homebuyers are choosing to wait and see where the housing market will end up, pushing demand and home prices further downward.”


To understand the impact of surging rates, the monthly payment on a median-priced home is 78% higher today compared to one year ago for buyers who put 20% down, according to Realtor.com economic data analyst Hannah Jones. 


With interest rates now at 14-year highs, the cost of homeownership is becoming an issue for most prospective home buyers. HousingWire recently spoke with CreditXpert’s Mike Darne about how mortgage lenders can leverage credit to help make homeownership more affordable.


Presented by: CreditXpert

“This translates to a whopping $1,000 increase in the typical home payment in just the last year,” Jones said in a statement. 


Searching for new options 

When borrowers show hesitancy due to high mortgage rates, loan officers work with options such as temporary rate buydowns, which allow homebuyers to receive lower mortgage rates at the start of their loan terms by using seller concessions as part of the payment. 


Temporary rate buydowns are not new, but tend to receive more attention when rates surge, according to industry experts. With the buydown, the borrower pays a lower rate during the first year or two and, after that, the full rate is paid for the remainder of the loan term. 


United Wholesale Mortgage (UWM) launched the product in August. In September, Rocket Mortgage and its wholesale arm Rocket Pro TPO announced the reduction of homebuyers’ monthly mortgage payments by one full percentage point for the first year of their loan.


Boise-based loan officer Blake Bianchi, founder and CEO at Future Mortgage, said he noticed an increase in clients choosing 2-1 temporary rate buydown. 


“About 50% of our clients are utilizing this program to achieve more affordable payments,” Bianchi said. “More clients believe they will have the opportunity to refinance within those two years.” 

Other options for clients include down payment assistance programs, which have also increased in popularity, according to loan officers. 


It may also be helpful to change the requirements of the down payment assistance programs, LOs say. 

According to Bianchi, there are talks that housing finance agencies are going to change their income requirements to 100% of the area median income, up from 80%, and changing the program requirements could help a larger number of homebuyers to obtain financing with 3% down payment versus having to come in with 5% down. 


Demand hits 25-year low

The Freddie Mac index compiles purchase mortgage rates reported by lenders during the past three days – and starting in November, it will collect data from applications received from thousands of lenders across the country. It’s focused on conventional, conforming, fully amortizing home purchase loans for borrowers who put 20% down and have excellent credit. 


Other indexes also show rates slightly above 7%. 

On HousingWire’s Mortgage Rates Center, Black Knight’s Optimal Blue OBMMI pricing engine, which also includes some refinancing products, measured the 30-year conforming rate at 7.009% on Wednesday, down from 7.026% the previous week. Meanwhile, the 30-year fixed-rate jumbo (greater than $647,200) increased from 6.746% to 6.908% in the same period.


Mortgage rates were 7.07% for conforming and 6.05% for jumbos at Mortgage News Daily on Wednesday. 

Amid the ongoing economic uncertainty and affordability challenges, borrower demand for mortgage loans hit a 25-year low last week. 


MBA’s survey showed the mortgage composite index for the week ending Oct. 21 fell 1.7% from the prior week and 69% compared to the same period in 2021. The survey, conducted weekly since 1990, covers 75% of all U.S. retail residential mortgage applications.


“Interest rates on 30-year, fixed-rate home loans have now risen almost four full percentage points in 2022, making homeownership unaffordable for many would-be buyers,” Kate Wood, home expert at NerdWallet, said in a statement. “The last time mortgage rates climbed this fast was in 1981, after a series of aggressive Federal Reserve rate increases.” 


The Fed’s next moves 

Mortgage rates are surging due to a tightening monetary policy to tame inflation. The Fed increased its benchmark rate five times this year, which included three consecutive 0.75% hikes — and more is yet to come. 


“In line with the last three meetings, next week’s session is expected to bring a 75 basis point hike as the most recent inflation data does not show sufficient signs of cooling,” Jones said. “Four 75 basis point hikes in a row marks the largest series of target federal funds rate hikes in more than three decades.” 


Meanwhile, Treasury yields show higher rates in the short term, signaling a recession on the horizon. The 2-year note, closely tied to the Fed’s interest rate moves, decreased 16 bps to 4.39% on Wednesday from the prior week. The 10-year note went to 4.04% from 4.14% in the same period. 



“Mortgage rates are now firmly above 7%, and it’s because investors in the mortgage bond market are concerned about the persistence of inflation, which erodes lenders’ returns,” Holden Lewis, home and mortgage expert at NerdWallet, said in a statement. “The run-up to next week’s Fed meeting, during which the central bank is expected to raise short-term rates, has also pushed mortgage rates upward.” 


Have A Question?

Use the form below and we will give your our expert answers!

Reverse Mortgage Ask A Question

Start Your Loan with DDA today
Your local Mortgage Broker

Mortgage Broker Largo
See our Reviews

Looking for more details? Listen to our extended podcast! 

Check out our other helpful videos to learn more about credit and residential mortgages.

How Reverse for Purchase can help baby boomer borrowers

By Didier Malagies • December 3, 2024
After spending their entire career in the “accumulation” phase of wealth building, retirees who then have to transition into the “decumulation” phase — spending down their assets with no additional employment income — is a source of stress for nearly half of American retirees. This is according to a study conducted by the Alliance for Lifetime Income . The study used a targeted respondent pool of 2,516 people between the ages 45 and 75. The majority of respondents singled out inflation and the cost of living (82%) as the key issues impeding their retirement savings plans. Health care costs came in second at 70%. But the decumulation phase is a clear source of anxiety for retirees, the results of the survey explained, since it involves acting in the opposite way about finances when compared to a disciplined savings plan that may have been in place for decades. “Not having a clear plan for drawing-down savings and knowing how to generate income in retirement are major contributing factors to people’s anxiety,” the survey results explained. “Alarmingly, fewer than a third of respondents (32%) said they have a specific income plan in place for retirement. 41% said they don’t know how to stage withdrawals from their accounts, and fewer than half (49%) know how to handle required minimum distributions or minimize taxes, both essential pieces to sound retirement income planning.” Three tasks emerged for respondents as nearly equally difficult or confusing when it comes to creating plans for retirement spending — prioritizing what to spend money on, determining how much must be set aside to cover health costs, and how to optimize a pattern of withdrawals from accounts. Adding to the anxiety for many older Americans is the poor condition of the Social Security trust fund and the lack of political will from lawmakers to adequately address an expected 2035 shortfall in benefit payments. “Over a third (37%) of consumers have already started claiming Social Security, with 67% saying they did so because they are disabled or needed income, while 28% started early withdrawals out of fear Social Security will not be available or their payments will be cut, or they will die before reaching full retirement age,” the survey results stated. The decision to begin claiming these benefits is primarily based on personal judgment. Nearly three in four (73%) of respondents decided on their own to begin claims compared to only 9% who did so on the advice of a financial adviser. Jean Statler, CEO of the Alliance for Lifetime Income, emphasized the emotional issues that could stem from realizing that a paycheck from work is no longer coming and being “left with a lump-sum of money that has to last for what could be 20, 30 or more years,” she said.  “If there’s just one thing you can do to prepare and lower your anxiety, it’s having a clear retirement income plan,” Statler said. “And the most important thing in that plan is having enough protected income between Social Security, annuities, or a pension, to cover your basics — those essential expenses you have to pay for like housing and food.”

My prediction on interest rates in 2025

By Didier Malagies • December 2, 2024
Predicting interest rate movements in 2025 depends on various economic factors, including inflation, employment trends, central bank policies, and global financial conditions. Here's a general overview: Key Factors Affecting Interest Rates: Inflation: Central banks like the Federal Reserve adjust interest rates to manage inflation. If inflation stays high, rates may remain elevated. If inflation moderates, there could be a case for lowering rates. Economic Growth: Strong economic growth might keep rates steady or higher, while signs of economic slowdown could lead to rate cuts to stimulate activity. Central Bank Policy: In 2023 and 2024, many central banks raised rates to combat inflation. By 2025, they might shift focus depending on how well inflation is controlled and economic growth sustains. Labor Market: A robust job market might delay rate cuts, while rising unemployment could prompt reductions. Global Conditions: Factors like geopolitical events, commodity prices, and trade dynamics will also play a role. Expert Predictions: Economists and financial analysts have varying opinions, often influenced by current data and expectations about future trends. Many anticipate that rates could stabilize or decrease by 2025 if inflation is tamed and the economy requires additional support. If you'd like more up-to-date insights or analysis closer to 2025, let me know, and I can provide the latest expert views. tune in and learn at https://www.ddamortgage.com/blog didier malagies nmls#212566 dda mortgage nmls#324329

Retirees are stressed about spending their savings, study finds

By Didier Malagies • November 27, 2024
After spending their entire career in the “accumulation” phase of wealth building, retirees who then have to transition into the “decumulation” phase — spending down their assets with no additional employment income — is a source of stress for nearly half of American retirees. This is according to a study conducted by the Alliance for Lifetime Income . The study used a targeted respondent pool of 2,516 people between the ages 45 and 75. The majority of respondents singled out inflation and the cost of living (82%) as the key issues impeding their retirement savings plans. Health care costs came in second at 70%. But the decumulation phase is a clear source of anxiety for retirees, the results of the survey explained, since it involves acting in the opposite way about finances when compared to a disciplined savings plan that may have been in place for decades. “Not having a clear plan for drawing-down savings and knowing how to generate income in retirement are major contributing factors to people’s anxiety,” the survey results explained. “Alarmingly, fewer than a third of respondents (32%) said they have a specific income plan in place for retirement. 41% said they don’t know how to stage withdrawals from their accounts, and fewer than half (49%) know how to handle required minimum distributions or minimize taxes, both essential pieces to sound retirement income planning.” Three tasks emerged for respondents as nearly equally difficult or confusing when it comes to creating plans for retirement spending — prioritizing what to spend money on, determining how much must be set aside to cover health costs, and how to optimize a pattern of withdrawals from accounts. Adding to the anxiety for many older Americans is the poor condition of the Social Security trust fund and the lack of political will from lawmakers to adequately address an expected 2035 shortfall in benefit payments. “Over a third (37%) of consumers have already started claiming Social Security, with 67% saying they did so because they are disabled or needed income, while 28% started early withdrawals out of fear Social Security will not be available or their payments will be cut, or they will die before reaching full retirement age,” the survey results stated. The decision to begin claiming these benefits is primarily based on personal judgment. Nearly three in four (73%) of respondents decided on their own to begin claims compared to only 9% who did so on the advice of a financial adviser. Jean Statler, CEO of the Alliance for Lifetime Income, emphasized the emotional issues that could stem from realizing that a paycheck from work is no longer coming and being “left with a lump-sum of money that has to last for what could be 20, 30 or more years,” she said.  “If there’s just one thing you can do to prepare and lower your anxiety, it’s having a clear retirement income plan,” Statler said. “And the most important thing in that plan is having enough protected income between Social Security, annuities, or a pension, to cover your basics — those essential expenses you have to pay for like housing and food.”
Show More
Share by: