Broadcast Retirement Network’s Jeffrey Snyder discusses mortgage rate movements and how you can get the best interest rate with Bankrate’s Ted Rossman.
Jeffrey Snyder, Broadcast Retirement Network
Joining me now is Ted Rossman. He’s Principal Analyst for Bankrate.
Ted, always great to see you. Thanks for joining us this morning.
Ted Rossman, Bankrate
Great to be here. Thank you.
Jeffrey Snyder, Broadcast Retirement Network
And before we get into mortgage rates, how did the trip to Disney go? Did you and the family have a good time?
Ted Rossman, Bankrate
It was great. Yeah. My little ones are more into the rides than I am.
I was a little scared a few times, but yeah, it worked out well. It was fun. Thank you.
Jeffrey Snyder, Broadcast Retirement Network
Yeah. From what I recall, and this is going back 40 years, that Space Mountain, that was a doozy. I never got on another roller coaster after that back in 1982, I think.
So, the kids are probably braver than I am. All right, Ted, let’s talk about mortgage rates. And I want to get into credit scores.
I want to get into the blockade, the war. But where do, as of our recording, so this is Tuesday morning, 9 a.m., where do mortgage rates sit for the 30-year mortgage?
Ted Rossman, Bankrate
The average 30-year fixed mortgage rate is 6.3%, which represents kind of the midpoint of where it’s been over the past couple of months. In late February, right before the war in Iran broke out, mortgage rates were around 6%. And we were really starting to get excited about, could we hit 5.5?
Could we be somewhere in the upper fives during the spring buying season? That could get some people off the sidelines. Now, as we know, the war pretty much immediately pushed rates higher because of all these inflation fears about higher oil and gas prices.
All of a sudden, the average 30-year fixed was more like 6.5%. We were hoping it would go down to more like 5.5%. So, it actually did make a difference. It did keep some people on the sidelines in March and April. Now, we’ve seen a bit of a downward trend over the past couple weeks.
So, now we’re down to 6.3%. It does seem, though, that rates could stay higher for longer as a result of all this. Even if the war ends immediately, there has been some damage done to oil and gas markets, supply chains. Inflation’s going to be a bit higher.
Right now, investors are not pricing in any interest rate moves by the Fed this year. Previously, it was thought they might cut two or three times. Now, that doesn’t directly affect mortgage rates, but investors are reading the same tea leaves.
We may be stuck here in the low to mid-sixes for much of the year, which is not quite as low as we were hoping.
Jeffrey Snyder, Broadcast Retirement Network
Yeah, but as a child of the 70s and 80s, I remember double-digit mortgage rates, or at least I remember my parents having I was a little young having double-digit mortgage rates. So, it’s not historically high, but it is certainly high relative to where we have been. Ted, I want to ask you, Bankrate recently had a report around the impact of credit scoring, the credit scores to the mortgage rate that you ultimately get.
What’s the impact, and do I need to hit 850 in order to get that best rate?
Ted Rossman, Bankrate
The impact can be huge. You don’t need a perfect 850. Generally, for a mortgage, the best terms are going to start around 780 on the FICO credit scoring scale.
So, it goes from 300 to 850. You don’t need to be perfect, but 780 and up is really the best terms for mortgages. For other financial products, the line is a little bit lower.
It’s more like 740, 750. The difference is tremendous, though. If you’re buying a median-priced home, which is around $400,000, if you put 20% down, you finance the rest, there’s actually a $70,000 difference in total interest between top-notch credit and fair credit.
So, that would be about a 780 versus about a 620. It’s only a one percentage point difference, but it adds up to $70,000 in interest over the life of the loan. There are a lot of different gradations along the way.
Really, every 20 points or so from the 600s into the 700s can make a big difference. Even a quarter point here, a quarter point there, we could be talking tens of thousands of dollars. So, really, there’s two sides to this.
There’s improve your credit, and we can talk about ways to do that, and also shop around for the best rate. If you do those two things, you can beat the national average.
Jeffrey Snyder, Broadcast Retirement Network
Ted, have you ever seen anybody with an 850 perfect score? I mean, is it like Elon Musk billionaire level that gets the perfect score? It’s rare.
Ted Rossman, Bankrate
I have seen it. I’ve come sort of close myself. I think the closest I ever got was like 831 or something.
Jeffrey Snyder, Broadcast Retirement Network
Yeah, that’s where I am right now.
Ted Rossman, Bankrate
Dipped a little bit. You know, you don’t need to be perfect, again, to underscore that point. Generally, what you want to do is pay your bills on time, keep your debts low, manage various types of credit successfully over the long haul, kind of lather, rinse, repeat.
There are some things to jumpstart a score. If you either don’t have much of a credit history or if you have some blemishes like late payments, you can get on a parent or spouse’s credit card as an authorized user. You can piggyback off their good credit history or you can sign up for a service like Experian Boost that brings in certain rent payments and streaming plans and utilities.
Or you can sign up for a credit builder loan, which is kind of a form of forced savings that reports to the credit bureaus. You can pay down some credit card debt. Even if you pay in full every month, you might be showing a high balance on that statement date.
So you want to knock that down before the statement even comes out. We don’t need to split hairs between like an 810 and an 820 and an 830, but especially if you’re in those 600s, 700s, every little bit counts.
Jeffrey Snyder, Broadcast Retirement Network
Yeah, absolutely. $70,000 is material. Better in my pocket and me saving that money and putting it towards education or whatever than giving it away in interest.
Ted, I want to ask you, we’ve been talking about fixed rate mortgages. That’s a traditional 30-year mortgage, mostly fixed rate. Are adjustable rate mortgages kind of becoming in vogue given the higher than in recent history those mortgage rates?
Ted Rossman, Bankrate
The vast majority of mortgage holders are opting for fixed rates. You can sometimes save a little bit by going with an adjustable rate, maybe like a 5-1 or 7-1 arm. So that would mean that it’s fixed for the first five or seven years, respectively, and then once a year it adjusts based on market conditions.
It’s kind of tricky to read the interest rate tea leaves right now, though. I mean, we got this head fake this year where we thought rates were going down and now they’re actually plateauing. Some have said that rates could even go up if inflation were to really rear its head and if the war became more protracted.
That’s seeming less likely right now, but it is a bit of a gamble when you’re taking on an adjustable rate. Right now we do see most people opting for the fixed rate. There’s also the school of thought that says, marry the house, date the rate.
In other words, you can refinance in the future if and when rates fall, but at least when you get a fixed rate you’re insulated from any potential increases. So that is kind of a popular theory that, well, if rates fall in a year or two or three, you don’t want to put all your eggs in that basket. If you’re looking to buy right now, you should make sure that you can afford the current rates.
But if rates were to fall in the future, hey, that’s an added bonus.
Jeffrey Snyder, Broadcast Retirement Network
Yeah. Yeah. I like that approach.
You know, just leaving it up to the company to adjust my rate. I’d rather have personally rather have control over that. Lastly, Ted, you know, we’re going into the spring or we are currently in the spring home buying season.
Is it a buyer’s market or a seller’s market? And is that based mostly on the rate and or the volume of or the amount of transaction available, amount of houses available? Excuse me.
Ted Rossman, Bankrate
The pendulum has been swinging in the favor of buyers. We’re especially seeing that in some of the once hot Sunbelt markets. We’ve seen real estate really cooling in places like Florida, Texas, Nashville, Austin, places that just ran up tremendously in recent years.
What goes up must come down. We are seeing some declines there and we are seeing more inventory. So right now, buyers do have the upper hand in a lot of the South, even a lot of the West.
The sellers are still having a bit of the upper hand more in the Northeast, the Midwest. These are places where inventory is more constrained. Sellers have a bit more pricing power.
But a lot of this is sort of the reversion to the mean. I mean, a few years ago, we had the complete opposite phenomenon going on where we just saw tremendous run ups in in places like the Sunbelt. And it was more ho-hum in places like the Northeast and the Midwest.
So now it’s kind of flipped a little bit.
Jeffrey Snyder, Broadcast Retirement Network
Yeah, it’s a it’s a dynamic market. And we didn’t even get into the NAR commissions and what that we’ll have to do that next time. Hey, Ted, before I let you go, is It’s a Small World ride still at Disney?
Ted Rossman, Bankrate
It’s still there. Yeah, they’ve still got the nostalgia running.
Jeffrey Snyder, Broadcast Retirement Network
I love that. I am so sad that they got rid of 20,000 leagues under the sea. That must have been like over two decades ago.
I love that. But it’s a small world. It’s got a special place for in my heart.
Ted, always great to see you. Thanks for joining us. And we look forward to having you back again next month.
Sounds good. Thank you.
