CURRENT HIGH INTEREST RATE QUESTION

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  • #80194
    Pure1
    Participant

    As I have been watching interest rates going up and NACA is now above 5%.
    It occurred to me that if I buy now with NACA at these high rates vs non NACA, I cannot refinance NACA’S rate at a later date if rates fall. However non NACA mortgages will be able to refinance down. This can save significant $$ over the life of the mortgage.
    Any thoughts are welcome.

    #80421
    TTrumble
    Member

    Hello Pure1,

    There are a couple of inaccurate assumptions in your message.

    The statement “I cannot refinance NACA’S rate at a later date if rates fall” isn’t true. You can refinance, but we just aren’t going to allow it for five years. The simple reason why is that it would give property investors/flippers an easy loophole to get out of the owner-occupancy requirement.

    Additionally, you are not going to be able to refinance out of any loan, or even obtain a mortgage modification, for an absolute minimum of 12 months. The lender is going to require that the loan “season” with a minimum 12 on-time consecutive payments before anything can be done. The refi lender will likely require even longer.

    You are presuming that mortgage rates are going to fall at some point in the reasonably near future. People seem to have forgotten that prior to the mortgage crisis, rates of seven-to-eight-percent were commonplace and not considered predatory. The problem likely stems from the fact that mortgage rates crashed so dramatically when the economy tanked in 2007 and have stayed that way until the buying frenzy started during the pandemic. It was long enough ago that rates at their current level seem outrageous by comparison even they are in reality pretty normal historically.

    In fact, tomorrow (September 21) the Federal Reserve Board is meeting in Washington and will raise the Fed Funds rate by 0.75% to 1.00% as a way of trying to stem the tide of rising inflation. While mortgage rates are not directly tied to the Fed Funds rate, they will follow suit and you will see market rates break 7% and possibly even get close to 8%. The rise in mortgage interest rates is coincidentally a means of trying to battle the outlandish increase in home prices that began even before the current inflationary spiral in the economy (and it actually appears to be starting to turn things around for housing prices).

    Finally (Whew! How long is that Tim guy gonna go on for?) you are forgetting that a refi lender will either charge closing costs and fees for initiating the new loan or build it into the refi with a higher rate. NACA is unique in that the closing costs and fees are not rolled into the loan in any fashion but are truly absorbed by BOA. That is one of the reasons that it’s almost always unwise to sell or refi within five years anyway even at market rates, much less after saving all that money to begin with through NACA.

    Okay, end of lecture! 😀 Long story short, even at today’s rates, much less with the 1% reduction for low- to moderate-income buyers or buyers in lower income areas, it just won’t be feasible to refi out of the NACA loan for several years.

    Tim Trumble
    Online Operations, NACA

    • This reply was modified 1 week, 5 days ago by TTrumble.
    • This reply was modified 1 week, 5 days ago by TTrumble.
    • This reply was modified 1 week, 5 days ago by TTrumble.
    #80525
    Pure1
    Participant

    Hello TTrumble.
    It was well worth the long wait for such a detailed response. I truly appreciate the time and effort you took to craft it.
    I’ve been NACA qualified since January 2022 (requalified for multifamily in April) and have watch with absolute horror (yes horror) as interest rates increase exponentially and my affordability decimated. Even as I’ve saved much more money than I ever thought I could.
    The rate of increase for house prices over the past few years was much higher than it usually is.
    So now these higher interest rates, even though they may be a return to prior years baseline, are no longer comparable. Because prior years house prices were much less. Of course this is not a revelation to anyone.
    I understand what the federal reserve board is attempting to achieve by increasing rates. But as with many things that we purchase, once prices go up, it mostly stays up. Efforts to stop out of control inflation hardly ever return prices to their previous baseline, instead merely put the brakes on the rate of increase.
    House prices are not falling in any meaningful way to impact affordability. Sellers are still expecting to sell for what the comps sold for. Also they know housing inventories are low. So they don’t mind having their house sit a bit longer on the market. Someone will eventually buy it.
    NACA is an excellent program. That
    fact is indisputable. But times have changed. NACA keeps affordability low for an understandable reason. So people don’t end up with a mortgage they can’t afford.
    To help people like me in these current unaffordable times. My suggestion is that NACA and BoA come together and maybe increase the max interest rate buydown as well as reduce the cost of each buydown point.
    Because times have changed, and a lot of the folks NACA want to help buy a home are priced out right now. Including me.
    What is the point of such a great resource as NACA is, with billions sitting in funding, if its inaccessible to the very people it was created to help?

    #80561
    TTrumble
    Member

    Hello Pure1,

    You’re not the only who is using the word horror to describe the housing market these days. I have watched my own son get priced out of the market, especially here in Charlotte, which is not only one of the most overpriced markets in the country, but has been a key target for corporate invstors gobbling up properties to convert them to rental homes.

    I undeerstand what you are saying about prices after an inflationary spiral, but there will definitely be housing market correction in the near future, and we’re seeing signs of it starting to happen.

    I wish we could roll back the interest rate buy down program to the incredible oppotunity that we introduced in 2014 where you could buy down in some cases to as little as 0.125%. Unfortunately, those days are gone and the five-point limit is a legal restriction. The ten-point contribution by the seller is still allowable though, and seller contributions do still happen, especially in cases where significant repairs are needed.

    Even with all that is going on, we are still closing on hundreds of homes every month. If rates go much higher, you will likely see us begin to actively advocate as they reach levels we consider predatory.

    In short, there’s definitely still a battle ahead to get out of the current mess out there, but fighting for affordable homeownership is what NACA has done for 35 years, and we’re not slowing down now.

    Tim Trumble
    Online Operations, NACA

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