INTEREST rates on mortgages are now the highest in more than a decade, putting a heavy strain on Americans’ finances.
In the week ending April, the average rate on a 30-year fixed mortgage was 5.11%, according to data from Freddie Mac.
This is the first time since February 2011 that a mortgage index has exceeded 5%.
The trend comes as markets react to recent warnings and actions by the Federal Reserve.
The Fed, which has already raised rates once this year, could raise them several times this year.
Keep in mind that the Fed does not set mortgage rates, but impacts them with its monetary policies.
In particular, the Fed took action to prevent inflation from continuing to rise as rapidly as supply failed to meet demand.
It seems to work to some extent.
“While spring is usually the busiest time to buy a home, rising rates have caused some volatility in demand,” said Sam Khater, chief economist at Freddie Mac.
“It continues to be a seller’s market, but buyers who remain interested in buying a home may find that the competition has softened moderately.”
But keep in mind that even if house prices don’t rise as quickly, forward interest will become more expensive.
For example, if you were to act on a rate of 5.11%, you would pay approximately $287,000 in total interest on a loan of $300,000 over 30 years, according to calculator.net.
If you had done the same when interest rates were 2.72% earlier in the pandemic, you would have paid only about $139,186, or almost $148,000 less.
Whether you’re a homeowner with an adjustable mortgage rate or a buyer in the market, there are several ways to get help.
First-time home buyers
Cash assistance to buyers
In your state, you may be eligible for a cash assistance program for first-time home buyers.
However, keep in mind that these may come with strict income requirements.
For example, in New York, a household of four must not have an area median income (AMI) greater than 80% of $95,450.
Qualifying new homeowners can get up to $100,000 for a down payment or closing costs.
In South Dakota, on the other hand, your household income must be between $86,000 and a maximum of $111,000, depending on the county.
The price of the house also cannot exceed $300,000.
Eligible new homeowners in South Dakota will benefit from low interest fixed mortgage rates and cash assistance.
Owners and first-time buyers
Increase the term of the loan
As interest rates rise, there could be a way for first-time buyers and homeowners to keep their payments in check.
You may want to consider increasing the term of the mortgage.
Most mortgage terms are usually 15, 20 or 30 years.
Although this may lower your mortgage payment, keep in mind that you will pay more interest throughout the life of the loan.
Also keep in mind that your interest rate may increase if you replace an existing mortgage through a refinance.
Some homeowners with variable rate mortgages, which could change periodically, may find it difficult to keep up with their payments.
While the national Covid-19 emergency remains in effect, struggling homeowners can apply for forbearance through assistance provided by the Federal Housing Administration (FHA).
If you apply now to suspend your mortgage payments, you may be eligible for a forbearance of up to one year.
Initially, you will benefit from a six-month forbearance with the possibility of implementing an extension for an additional six months.
While it’s unclear how long the national emergency will last, President Joe Biden announced earlier this year that it would be extended indefinitely.
Homeowners Assistance Fund
The Homeowners Assistance Fund (HAF) is a $9.961 billion federal program that helps struggling households pay off mortgages and other housing-related expenses.
The purpose of the HAF is to prevent foreclosures, mortgage defaults and defaults, loss of utilities or other services, and displacement of homeowners incurring financial burdens after January 21, 2020.
About 30 states, Guam and Puerto Rico have launched HAF programs, saving millions of Americans from foreclosure.
The amount you can get varies by state, but California currently offers the highest maximum at $80,000 per household.
By comparison, Arizona offers up to $25,000, Georgia up to $50,000, and Oklahoma up to $20,000.
To qualify, income must be 150% or less of the region’s median income or 100% of the US median income, whichever is greater.
In addition, the owner’s mortgage balance must be less than $548,250.
If you can’t afford at least 20% down payment on a home, a lender will usually ask you to purchase private mortgage insurance (PMI).
PMIs are designed to protect the lender against losses in the event that you stop paying the mortgage.
It typically costs between 0.22% and 2.25% of your loan balance each year, according to banking giant Chase.
However, you can remove it once you own at least 20% equity in your home.
In fact, the lender will do this automatically once your mortgage is paid off at 78% of its original value.
But it’s worth asking your lender to remove this ahead of time if you’re already eligible.
Contact your lender
Finally, it may be a good idea to contact your lender and review your options.
This may include refinancing or seeing if you can get a break on your loans.
Struggling homeowners should also ask what foreclosure prevention options are available.
To learn more about how you can get help, applications for four UBI and one-time payments open.
Additionally, rental assistance worth up to $63,000 expires in some states.
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