Chicago, IL (PRWEB) June 13, 2013
Since 2009, the Federal Reserve began pushing interest rates to historically low levels to create a more favorable climate for investors. Consequently, this created an opportunity for many homeowners to refinance their mortgages, locking in a low rate, saving them hundreds of dollars a month and allowing some to pay off their mortgages well before they were due. For many, the time to refinance has come to an end.
Mortgage rates are climbing, recently surpassing 4 percent. With the Federal Reserve intending to scale back its quantitative easing policy, it appears that rates will continue to rise. It comes as no surprise then that mortgage refinance applications fell to their lowest point since 2011.
So what does this mean for first-time home buyers?
In order to understand what is in store for first-time home buyers, we need to look at what will happen inside financial institutions as a result of the mortgage rate hike.
First, as a consequence of ultra-low interest rates, banks experienced record profit margins on mortgages in 2012. Mortgage refinancing was a very profitable venue for financial institutions. Now that rates have significantly reduced the number of refinances, banks will need to tighten up their mortgage profit margins.
In order to achieve this, banks may be required to lay-off the personnel they hired to process all of the refinancing applications. But here is the kicker for first-time home buyers - because higher rates will deter people from owning their own homes and reduce the number of mortgage applications - banks will need to loosen their lending standards, according to Bloomberg.
For many home buyers patiently waiting on the market sidelines with less than ideal credit scores, "the next few years will be your time to secure financing" says Nick, a banker at The Federal Savings Bank.
While banks will not slip into the predatory schemes that caused the housing crisis, they will relax their FICO credit scores to around 710, allowing more people access to mortgage financing, says Paul Miller, analyst at FBR Capital Markets
However, the greatest single cause of the rise in mortgage rates is probably the improving economy. The Federal Reserve sees no reason to continue pumping $85 billion into the real estate market each month. For information on how the interest rate environment can effect a home purchase or refinance please contact a loan officer at: TheFederalSavingsBank.com