Personal Finance

Mortgage Forecast: Sunny with Intermittent Clouds

It is a simple matter using an internet search engine to find hundreds of forecasts about the direction of interest rates in 2021. Yes, economists and non-economists alike around the world are paid to come up with prognostications on the direction of Treasury rates, corporate debt rates, and, most relevant to millions of homeowners in the United States, mortgage rates.

What is rarely presented to the public, however, are thoughts on home loans themselves. Namely, will they become easier? Faster? Will the types of home loans increase? Can borrowers find help with their down payment? Will affordable housing options increase? Will internet lending replace the local loan officer? This is all important for anyone refinancing their current home loan or thinking about obtaining financing for a home’s purchase.

What to expect

Borrowers should know that lenders have a wide variety of relatively new technological advances to chose from to help their borrowers. At the same time, the process has not changed that much: an application is taken, the borrower’s credit is analyzed, the property appraised, a rate and program selected, and then the loan “funds.”

But those steps have been helped through the use of software that improves the speed and accuracy of data collection. And this is expected to continue into the future for mortgagees.

Likewise, borrowers and lenders have a wide variety of programs from which to choose. There are differences between 2021 and 2006, for instance, primarily because subprime lending has nearly vanished. Those were loan types where borrowers could merely state their income or the value of their home.

They have been replaced with more standard loans for which borrowers have to prove that they have the ability to repay. Yet the standard home loan amortization types (fixed, adjustable, 30-year, 15-year, or variations of them) are still the same, and expected to remain steady in 2021.

The basic loan programs are expected to remain the same as well. Currently Freddie Mac and Fannie Mae are the two largest investors of mortgages originated in the United States. Lenders also use programs offered through, and guaranteed by, the Veteran’s Administration (VA) and Federal Housing Administration (FHA), as well as jumbo (high balance), rural, and bond programs. Also, some banks and credit unions offer “portfolio” products. We can expect this line up of investors and guarantors to continue for the foreseeable future.

What’s new, changing

With interest rates as low as they are, in many areas of the nation it is less expensive, on a month-to-month cash-flow basis, to own one’s own place versus renting. Individuals and families pay for the convenience or freedom of renting, or in many cases have not saved adequate funds for a down payment.

Yet loan officers have the ability to offer a plethora of “down payment assistance” programs to borrowers to help them come up with a down payment. These programs are often based on geography, income or need, or type of home. Fortunately, given the rising home prices and the new presidential administration, help with down payments is only expected to increase.

The turnover in Washington, DC, also has led to a renewed interest in affordable housing options around the country. This is certainly a change that the industry expects. The increase in house prices in many parts of the nation has outpaced the rate of inflation and wage growth, leading to a group of potential homeowners that find themselves left on the sidelines. An increased emphasis on this group appears to already be evolving with the new Administration, and options should only increase.

So, what to do?

With all that being said, the personal touch is still critical for many borrowers to have. While the internet is a useful tool for many to have and use – especially to get an overview of what’s out there in terms of lending – loan officers have found themselves helping millions of borrowers in recent years.

Good loan officers educate borrowers on down payment assistance programs, affordable housing options, the nuances and suitability of various loan programs, and how to best use technology during the loan process to ease or eliminate roadblocks.

The good news is that, for an individual or family refinancing their current home loan, or buying a new home, the mortgage process will continue to evolve in their favor. Every potential borrower is advised to seek wise counsel and fully educate themselves regarding options. It can only lead to a better experience.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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