Tag Archives: Financing

Increasing Interest Rates

Photo Credit: Fed Funds Roller Coaster
Photo Credit: Fed Funds Roller Coaster

On December 16, 2015, the Federal Reserve increased its benchmark interest rate by .25%. This was the first rate increase by the Fed in over nine years!


Generally the Fed makes interest rate moves in cycles. The chart shows the Fed Funds Rate rollercoaster over the past 25 years.

So what does this mean for you and your home loan?


Existing Loans

  • Fixed Rate Mortgages – no affect. Loan terms on existing fixed-rate loans will not change.
  • Adjustable Rate Mortgages (ARMs) – collateral affect. Generally the Fed changes also affects other rate indexes, meaning ARM loans may see increases during their adjustable period.
  • Home Equity Lines of Credit (HELOCs) – direct affect. Most HELOC’s adjust based on the Prime Index, which is directly impacted by the Fed rate change. This means HELOCs may see increases during their adjustable period.


New Loans

Surprisingly, Fed rate increases don’t immediately increase mortgage rates. That’s because the Fed changes affect the Discount Rate and Fed Funds Rate, which is very different from mortgage rates. A mortgage rate can be in effect for 30-years, a rate that is set by the Fed can change day-to-day.


A closer look at historical moves by the Fed shows that its rate cuts often increase mortgage rates in the short term, while its rate hikes often decrease mortgage rates in the short term.


So ultimately, new home loans in the short term will NOT see immediate increases in rates due to the Fed rate hike.


However, the Fed’s move does give a general indication of the overall markets and economy, meaning the trend to come will be elevated interest rate levels.


Feel free to contact us if you have any questions regarding interest rates…we’re here to help!!

New Credit Scoring Model For Homeowners

Photo Credit: www.mentalhealthy.co.uk
Photo Credit: www.mentalhealthy.co.uk

FICO, the primary credit scoring system used in lending, is releasing a new scoring model at some point this fall. This new 9.0 model has been advertised to contain major changes that are expected to be a big help for consumers. However, there are some things many aren’t considering with the new release.


The newest FICO model has revised previous versions to no longer penalize consumers for medical collection issues. This would seem to be big news for millions of consumers who are victim to the imperfect credit reporting systems of the medical industry. Consumers caught in this medical collection web will often find their credit scores are significantly impacted in a negative way.


Because of this, some aren’t able to qualify for home loans; and the others who are able to qualify usually take a significant hit to their mortgage rates.


So one would think this new model would be of tremendous benefit to consumers, since more would have improved qualifications for home purchases based on their new higher scores.


However, what the media hasn’t shared with us is that most mortgage lenders don’t even utilize the most current FICO scoring model in their underwriting process. The fact is Fannie Mae, Freddie Mac and most other lending institutions still use scoring models developed by FICO over 10 years ago. Many creditors haven’t even adopted the most recent FICO model that came out over six years ago. So it’s likely creditors won’t be jumping to this new model any time soon.


There are several reasons why lenders don’t leap to adopt new systems. A change in their scoring model results in a significant system overhaul, costing lenders tons of dough. The system changes also have to correlate with all the other government disclosure requirements. So the sheer cost and logistical nightmare likely won’t be worth the benefit of helping a few extra consumers. Because banks have to be profitable, we can assume their agenda would take precedence before the consumers’ needs.


Don’t sit on the fence, waiting for this prospective change to revolutionize your credit situation. It likely isn’t going to happen! You might as well do whatever else you can to accomplish your dream of purchasing a new home.


We have spent over 10 years analyzing the credit scoring system. We may have other ways to bump up your credit scores to help you through the home buying process. There is a lot of misinformation about credit scoring, including the myths surrounding credit monitoring (click here to learn why this is a waste of your money).


Every situation is unique…we’re happy to help!


NOTE: This new model is likely to take effect more immediately with consumer & revolving reports. These entities are faster to act with their adoption systems.