Mortgages could be changing in the near future, and these changes could impact how homeowners buy and sell their properties.
While making accurate predictions about future mortgages is extremely difficult (and often unreliable), we’ll look at current factors to see how mortgages could be impacted in 2021 and the following years.
How Might Mortgages Change in 2021 and Beyond?
The Biden administration could make changes that will impact the affordability and availability of mortgages. In particular, they have hinted that they may do away with mortgage rules that were created during the Trump administration, especially rules created in the final days of his presidency.
Most recently, the Consumer Financial Protection Bureau (CFPB) has said it may reconsider some of these rules. The CFPB was created in 2011 as a response to the economic crisis, and it is tasked with protecting consumers from harmful practices by credit card companies, lenders, and financial services.
The rules created by the Trump administration relate to residential loans for homeowners, revising protection that were made in the Dodd-Frank law, which was a reform bill passed after the 2008 economic crisis. Specifically, the rules deal with “seasoned qualified mortgages” and “general qualified mortgages.”
Both of these are, as the name indicates, qualified mortgages, which means they carry legal protections for lenders against consumer lawsuits. If borrowers are unable to make payments and lose their home, for example, they can’t sue the lender that supplied the financing. This is an important part of increasing lending, because without it many lenders would hesitate to make such financing.
Qualified loans are an important part of the lending industry. They have certain features that make them more stable, but they can’t contain a variety of characteristics. For example, these loans can’t be on an interest-only payment structure, which allows the borrower to pay down the interest only for a certain period. It can’t have negative amortization, which is when the loan principle increases even when you are making regular payments. There can be no balloon payments, and no loan terms longer than 30 years are allowed.
So there is a lot of uncertainty here. Overall, however, it seems that government rules could change how mortgages are made under the Biden administration. How exactly these rules will impact consumers has yet to be seen.
Overall, it appears that if the Biden administration proceeds with the changes, more loans could be available to buyers who may not have been able to qualify otherwise. However, there is concern that this could lead to they types of risky lending that led to the 2008 financial crisis.
What about 2021 Mortgage Rates?
Roughly a year ago, the Federal Reserve made adjustments to mortgage rates in a response to the slowing economy caused by COVID-19. As a result of these changes, interest rates dropped to record-low levels. Interest rates dropped to well below 3%, which has made mortgages some of the most affordable we have ever seen in our nation’s history.
Now there is reason to believe that the economy is steadily recovering. With increases in the financial markets and jobs, it seems that interest rates could begin to increase. As a result, it seems likely that mortgage interest rates will steadily rise. However, it seems unlikely that they will increase significantly. It’s more likely that the Federal Reserve slowly increases rates to support the economy while encouraging safe and stable growth.
Chances are strong that mortgage rates won’t remain low for much longer. That is why many in the industry are predicting that 2021 is a great time to purchase a home. If you are thinking of refinancing or purchasing a new home in the near future, you may want to act fast before interest rates and home prices rise.
Home Prices Changes Could Impact Mortgage Availability
While this has more to do with real estate in general and less to do with mortgages, it’s likely that home prices will continue to increase in 2021. This rise, of course, could mean that you’ll need to borrow more money, and that your modest downpayment may not be enough to qualify for the mortgage of your choice.
Home prices could rise roughly 10% in 2021. This means that a home valued at $750,000 at the beginning of the year would be valued at $825,000 at the end of the year. This has obvious implications for how you can borrow money, and it could impact whether or not you qualify for a loan that is large enough to make the purchase.
Could there Be Delays in Mortgage Processing?
Another potential change, although the industry will likely find ways to mitigate the issue, is that there could be delays in the processing time for certain loans. If sales volume rises, as it is expected to do, lenders could have a larger workload on their desk. In turn, this could mean a longer wait time. If the lines pile up, it could be days or even weeks to process a loan.
However, the industry is certainly capable of dealing with complexities like this and wait times will not be outrageously long.
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