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How Mortgages Will Look Moving Forward and What You Can Do to Prepare

December 14, 2015

With interest rates projected to rise, Angel Oak Home Loans weighs in on what factors might influence home buying decisions.

The current interest rate environment has many wondering whether it is a good time to obtain a mortgage loan. Those wondering whether to purchase a home and obtain a mortgage loan weigh factors such as the duration of the mortgage loan, loan interest rates, types of mortgage loan as well as loan volume, tax savings cause by deducting loan interest, and the costs of renting vs buying, looking to see which options would be best for them.

Whenever interest rates and thus mortgage loan interest rates look like they may rise, a number of things tend to happen. People start buying homes in order to lock in a lower mortgage loan interest rate – something that can easily save tens of thousands of dollars over the lifetime of a loan and home purchase. On the flipside, this increase in interest in buying a home often incentivizes current home owners looking to sell their homes to take the initiative to do so.

Once rates do rise, home owners with adjustable rate mortgages or ARM mortgage loans will need to consider their options, as they will be most affected by any changes in mortgage loan interest rates. Refinancing into a fixed mortgage loan is often a wise step for homeowners with ARM mortgage loans, as a fixed mortgage loan will allow ARM mortgage loan buyers to lock in lower interest rates before mortgage loan interest rates rise and their monthly payments go up. Home buying calculators and home buyer assistance programs provide great resources for both current home owners and prospective home owners to weigh their options and see what works best in their situation.

Even if interest rates were to rise, homeownership would still represent a smart investment for many home buyers. Home values have risen considerably over almost all period of time, and they will continue to do so as time goes on. Home owners can thus build equity rather than paying off a monthly rent, allowing home owners to build wealth for their future. Additionally, further into the mortgage loan, mortgage payments will be comparatively much smaller than rent payments, as rent will continue to rise.

In another form of home buyer assistance, mortgage loans impart a tax advantage to home owners, especially first time home buyers. Mortgage interest from a home loan can be deducted from the taxes owed by the home buyer. As interest is most heavily paid off earlier in the life of a mortgage loan, home buyers are able to save a lot of money on taxes when purchasing a home and obtaining mortgage loans. In addition, the amount of interest home buyers are able to deduct increases with higher interest rates on new mortgage loans, offsetting interest rate hikes to some degree. Home mortgage calculators are especially useful in determining how much taxes can be deducted for the purposes of a home loan.

Millennials are especially poised to benefit as first-time homebuyers. As the generation matures and becomes interested in purchasing homes, a lot of opportunity is generated. Many millennials were initially unable to obtain home loans during the economic recession due to low incomes and high volumes of student loan debt. But as millennials started growing in their careers and paying off their debt, homeownership became an opportunity for them to build wealth for the first time in their lives. Furthermore, many homeownership programs and home grants are geared toward helping first time home buyers purchase their first home and obtain a mortgage loan. These first time home buyer mortgage loan programs such as the FHA loan program often have low down payment requirements. There are also many guides helping first time home buyers through the home buying process, helping them calculate what they can afford, and helping find the best mortgage product to suit individual needs. Many of these first time home buyer programs have also adjusted to millennial preferences, communicating through texts rather than phone calls and emails to provide the most convenience possible.

For those deciding between a 15-year mortgage loan and 30-year mortgage loan, Whitney Fite, President of Angel Oak Home Loans, offers an opinion. “The 15-year loan is a forced savings account,” explains Fite, noting how though interest payments can be saved by going to a 15-year mortgage loan, it is also possible to simply pay additional amounts on top of your bill each month in a 30-year mortgage loan. The difference in monthly payments between the two mortgage loan durations is often significant, but by choosing the mortgage loan with a shorter duration, you also often limit your ability to purchase the home you want. This is because shorter duration mortgage loans have higher monthly payments, which can prevent you from taking out a larger mortgage loan.

The changing mortgage market opens up opportunity for different types of home buyers. Jumbo mortgage loans are becoming more and more common, helping mortgage borrowers purchase their dream homes, and low down payment mortgage loan plans are especially helpful for first time home buyers looking to make their first home purchase. Angel Oak Home Loans’ unwavering commitment is to make the mortgage process smooth, seamless and personalized for you. We are dedicated to delivering a world class client experience with an intense focus on speed, professionalism, and courtesy.

Learn more about the Angel Oak Home Loan mortgage programs

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About Angel Oak Home Loans
Angel Oak Home Loans, a mortgage banking firm that emerged after the 2008 financial crisis and economic recession, was founded with the goal of providing clients unique mortgage loan opportunities not offered by other mortgage lenders. Angel Oak serves everyone including first time homebuyers, investors, and home buyers with low credit, tailoring each mortgage solutions to the buyer’s specific needs under the belief that a strong foundation of service and relationship leads to a healthier business and local community.