Interest Rates Rise – Homebuyers Consider Alternative Loan Programs

According to Mortgage News Daily, the average rate of a 30-year fixed mortgage increased to 3.7% on January 18^th, 2022. This is 83 base points higher than this time last year and the highest it’s been since early April 2020.

Throughout 2020, mortgage rates set over a dozen record lows. Low mortgage rates increased homebuyer demand, making home prices rise throughout much of the country. Low inventory combined with high demand spurred bidding wars in several states. As a result, many homes sold for well above their sale price in both 2020 and 2021. In November 2021, home prices ballooned by 18.1% year-over-year. Home prices are still up double digits from this time last year.

Since the pandemic began, the Federal Reserve has purchased large amounts of mortgage-backed bonds to keep mortgage rates low. Although many expected this practice to continue through the first quarter of 2022, Feds have started pulling out of the Mortgage-Backed Security (MBS) market. This has caused mortgage rates to rise.

Despite lenders compressing their margins to keep rates low, many are already hitting 3.75%. This has had a major impact on refinancing in 2022. According to a recent survey by Mortgage Bankers Association, applications to refinance in January 2022 were down 50% from the previous year.

How the Recent Interest Rate Increase Impacts House Payments

At 3.7%, homebuyers looking to spend around $350,000 on an existing home will end up paying approximately $125 more each month than if they’d bought before mortgage rates went up. This may make home ownership inaccessible to many first-time homebuyers. If home prices continue to rise and mortgage rates exceed 4%, demand for homes may cool.

Alternative Loan Programs Offer Lower Interest Rates & Fast Loan Processing

Alternative financing and nonbanks provide bank-related lending services to individuals looking to buy or refinance their home. Alternative lenders fund mortgage loans through credit. They sell mortgages to investors, while managing payment collection from consumers. With fewer financial criteria, non-traditional mortgage lenders provide an easier path to securing a loan. This makes home ownership possible for many underserved individuals.

Most nonbank lenders offer similar services to legacy banks with lower down payments, reduced interest rates, and fast loan processing. Home loans offered by alternative lenders include fixed loans, Federal Housing Administration loans, United States Department of Agriculture loans, jumbo loans, and reverse mortgage loans. Nonbank lenders also offer refinancing options focused on lowering monthly mortgage payments.

Alternative funding has been increasing in popularity since the housing market crash in 2008. A recent study found that 40% of consumers believe nonbanks are a better option than traditional banks. As legacy banks raise their rates, it’s likely more homebuyers will turn to alternative financing to obtain a loan. Even with traditional banks attempting to reduce rates and simplify the loan process, it’s unlikely they’ll be able to compete with nonbanks in terms of loan processing time and interest rate reduction.

Strategic Sales and Marketing offers a variety of real estate sales and marketing services. Our team has years of experience working with the real estate industry and understands the steps required to identify and connect with potential buyers. Please contact us for more information about our services.