By Curt Peterson
The first important thing to know is that a mortgage is a lien, not a loan. A mortgage loan involves the borrower giving a mortgage on a property to a lender in exchange for funds, usually used to purchase the property. The property can’t be sold without paying off any part of the lien due at time of sale.
The Mountain Times talked to Norm Frates, senior vice president of residential lending at Mascoma Bank, to find out what people might look forward to when seeking to mortgage a property this coming year. Frates has been in the mortgage lending business 33 years, and provided a long-range perspective on the loan market as it relates to housing.
Frates said a 30-year, fixed-rate mortgage loan is the most popular option, and has a current interest rate as of Sept. 7 of 7.125% to 7.25%. The rate is driven by what the Federal Reserve sets as the fed funds rate for banks to borrow and lend among themselves . This also drives the bond yields and rates which directly influence mortgage interest rates.
Attempting to control inflation, the “Fed” has steadily raised its rates to banks since March of 2022 and the home mortgage loan rate has followed suit.
“Although,” Frates said, “Fed rate increases have slowed down, as have mortgage loan rates increases. A month ago the mortgage loan rate was the highest it’s been in some time — 7.75%. Now it’s a little lower.”
He thinks loan rates will stay about the same for some time. But demand for loans is still strong — Frates said home buyers are “OK with the current rates.”
“There’s a very low inventory of available properties, and a resulting high demand, but that doesn’t affect mortgage loan rates either way,” Frates said.
With notable increases in property prices, it’s important to know that mortgage loans over $726,000 are classed as “jumbo” loans with interest rates about .125% higher than smaller loans.
A buyer has to come up with a downpayment to make up the difference between the purchase price and any mortgage loan.
Frates said the downpayment amount is determined by both the qualifications of the borrower, and the characteristics of the property.
“For a primary single-family residence, the down-payment might be as low as 3 %,” he said. “And for second-home purchases, down-payments might be 20% for condos, and 10% for single-family units.”
“Most mortgage loans in Killington are 20% down situations,” he added.
If a borrower arranges a 15-year pay-back mortgage loan, they would currently pay an interest rate of 6.875%.
Cash buyers don’t have an advantage when purchasing property, he said, but they find real estate appreciation attractive vis a vis low savings interest rates.
“If higher returns on their money relative to mortgage loan rates becomes a reality later, they can ‘cash-out’ by refinancing, and use the funds to earn higher yields.”
What does the future of mortgage loan rates look like?
“It’s a crap shoot,” Frates said.
Adding, a bit later, “it’s just really hard to predict.”