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Unless Congress acts soon, students will see the interest rate on federally subsidized Stafford loans increase from 3.4 percent to 6.8 percent. This doubling of student loan interest rates will be the result of legislation setting an interest rate cap expiring come July of this year.
If the interest rate of student loans doubles, those paying for their college career with federal financing will see a massive uptick in their monthly bills. Worry over this surge in price has prompted more than 130,000 letters to be mailed to Congress, pleading the government to stop the interest rate legislation from expiring.
“I will be put back into buying a house and saving up for my expenses later on in life, and life as we know, is very unexpected. Adding that variable [doubled interest rates] definitely limits my ability to be successful,” said Tyler Dowden, an 18-year-old freshman at Northern Arizona University, in a press conference.
According to the Michigan-based news source M-Live, Jennifer Mishory, a director for a non-profit aimed at representing people between the ages of 18 and 34, says the possibility of a rate hike is a huge problem. She claims that many students are already struggling to pay back their student loans, and this rate hike will only hinder their efforts further.
But despite student’s cries, house representatives are not facing an easy decision.
Rep. John Kline, R-Minn., chairman of the House Education and the Workforce Committee, told The Associated Press the interest rate increase is the “result of a ticking time bomb set by Democrats five years ago.” Referencing legislation passed in 2007 that artificially lowered rates for federal student loans to 3.4 percent, he warns that somebody is going to have to pay the bill.
“We must either allow interest rates to rise on student loans, or stick taxpayers with another multi-billion dollar bill,” explained Jennifer Allen, a spokeswoman for Kline, in an email to The AP.
The cost for keeping rates so low is right around $6 billion every year.
Whoever receives the brunt of this interest rate bill is not going to be happy. If the rate reduction continues, the general public, many of whom are suffering from a slumped economy, would be forced to shoulder yet another financial blow. If it subsides, the nation’s students will suffer through more expensive student loan bills.
There’s a harsh debate occurring on Capitol Hill right now, and one that will undoubtedly heat up even further tomorrow when the House votes on a bill that will keep student loan interest rates from doubling.
Federal student loans have had their interest rates artificially capped at 3.4 percent by legislation passed in 2007. But the legislation is set to expire on July 1, 2012, which has students, graduates, and parents paying close attention to what our lawmakers will do. If the legislation expires, the federal student loan interest rates will double, landing at their original 6.8 percent that they would be at without a cap.
In order to stop federal student loan interest rates from doubling, Congress will need to come up with $5.9 billion in order to pay for the artificially lowered rates.
Friday’s bill, proposed by House Republicans, is designed to acquire that money by slashing money from President Barack Obama’s health care program.
The area of the health care program being targeted by the Republican’s bill is the prevention and public health fund, which is a $17 billion section of the health care system that finances immunizations, screenings, research, and wellness education.
Naturally, House Democrats were quick to vocalize their opposition.
Rep. Chris Van Hollen of Maryland, the top Democrat on the House Budget Committee, pointed out that it was the Republicans who originally pushed the current federal budget through the House, knowing full and well that the budget would allow the student loan rates to double.
“The GOP has suddenly changed their tune now that it has become politically unpopular,” Van Hollen said, according to Businessweek.
President Obama has been making campaign appearances at college campuses, where the issue of student loan interest rates has inevitably surfaced.
“Some [Republicans] suggest that students like you have to pay more so we can help bring down the deficit,” said Obama this week at the University of Iowa. “Now, think about that. These are the same folks who ran up the deficits for the last decade. They voted to keep giving billions of dollars in taxpayer subsidies to big oil companies who are raking in record profits. They voted to let millionaires and billionaires keep paying lower tax rates than middle-class workers.”
Republican House Speaker John Boehner answered the President’s recent remarks by saying the President has been, “trying to invent a fight where there wasn’t and never has been one,” according to Businessweek.
“We can and will fix the problem without a bunch of campaign-style theatrics,” Boehner added.
House Democrats hope to push their own bill through Congress that would keep student loan interest rates from doubling by raising Social Security and Medicare taxes on upper-income owners of some private corporations, which includes the private practices of lawyers and doctors, according to Businessweek.
A George Washington University Law School graduate is suing Citibank, Discover and The Student Loan Corporation, which is a subsidiary of Discover, for allegedly deceiving borrowers with fake interest reduction programs, according to ABC News.
Justin Kuehn, 29, claims he was a victim of a scheme in which his student loan provider told him he would receive lower monthly payments due to an interest rate reduction.
While Kuehn did see lower monthly payments, it wasn’t until later that he learned that his interest wasn’t reduced, but instead the amount of money being put towards his principal was what his provider reduced.
Kuehn graduated from law school in 2007, and immediately consolidated his four student loans into a single loan that amounted to $99,148.19 at a 9.55 percent interest rate. He paid nearly $850 a month, but would make additional payments in order to pay his principal down quicker.
Then in January of 2012, the Student Loan Corporation “unilaterally” dropped his monthly payment to $539.27, saying “The variable interest rate on your student loan has changed. Your monthly payment has been adjusted to reflect the new interest rate, as stated above,” reported ABC News.
But Kuehn’s interest rate only fell 0.50 percent—from 9.55 percent to 9.05 percent.
“They claimed [the lower monthly bill] was due to an interest rate reduction but I knew that, just by the amount of that drop, that couldn’t be correct,” he told ABC News.
As a result of this “interest rate reduction,” the amount of money being put towards Kuehn’s principal declined from $335.67 to $42.59, effectively extending the term of his student loan and extracting more interest from him—that is, if he didn’t catch the error first.
Kuehn contacted the Student Loan Corporation on January 4, but was told he couldn’t return his monthly payments to the original amount.
“I tried to resolve this with them and they were not open to it,” Kuehn told ABC News.
So he filed a law suit, which is currently pending litigation, and he hopes it will become a class-action suit.
A spokespeople for both Discover and Citibank said they couldn’t comment on the lawsuit since it is currently pending litigation.
Sallie Mae, one of the nation’s largest private student loan lenders, has announced that it will be offering lower interest rates for graduate borrowers.
Effective April 1, 2013, borrowers of the Smart Option Student Loan will be able to obtain variable- or fixed-rate financing featuring these new low interest rates.
The new variable interest rates will range from 2.25 to 7.5 percent and are tied to the Libor index. Fixed-rate financing will be set between 5.75 and 8.875 percent.
A Sallie Mae news release explained that these new low rates compare favorably when held against the government’s Direct PLUS Loan interest rates.
Patricia Christel, Vice President of Corporate Communications at Sallie Mae, told loans.org that Sallie Mae chose the month of April for several reasons that benefit borrowers.
“April is the beginning of the financial aid award letter season for the coming academic year, and the time when many students start to make decisions on how to pay for college,” she said.
Libor, the infamously manipulated interest rate index that made headlines last year, was also chosen for a specific reason.
“Libor is a commonly used index for variable rate loans,” explained Christel.
Despite these new low interest rates, borrowers are advised to use caution before borrowing student loans from Sallie Mae. There are other avenues of college financing, including the government’s federal student loan program.
“Which loan program is ‘better’ is an individual decision dependent on the student’s circumstances and preferences,” said Dewey Knight, Associate Director of Financial Aid at the University of Mississippi, in the news release. “We highly recommend that our students research both loan programs and choose the option that best meets their individual needs.”
Even Sallie Mae echoed Knight’s wise and cautious advice.
“We encourage graduate students to carefully weigh all available financing options, rates, fees, and total costs along with their career plans in mind,” said Christel.
Given the planned date of this development, Nikki Lavoie, Communications Manager for Sallie Mae, ensured loans.org that the lowering of interest rates on April 1 is not an April Fools’ joke.
Home loan interest rates jumped this week to a high for 2013, according to Freddie Mac’s weekly survey.
For the week ending March 14, 2013, the 30-year fixed-rate mortgage (FRM) averaged 3.63 percent with an average 0.8 point, up from last week when it averaged 3.52 percent. A year ago, the 30-year FRM averaged 3.92 percent.
This week’s reading for the 30-year FRM was its highest since Aug. 23, 2012. It has increased, albeit on a fluctuating path, since reaching its record low of 3.31 percent on Nov. 21, 2012.
This week’s 15-year fixed-rate mortgage averaged 2.79 percent with a 0.8 point. The rate is up from last week’s average of 2.76 percent. Last year at this time, the 15-year fixed home loan interest rate averaged 3.16 percent.
“Fixed mortgage rates rose this week on stronger signs of jobs growth and consumer spending,” said Frank Nothaft, Freddie Mac vice president and chief economist.
The 5-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) averaged 2.61 percent with a 0.6 point this week, down from last week when it averaged 2.63 percent. A year ago, the 5-year ARM averaged 2.83 percent.
The 1-year Treasury-indexed ARM averaged 2.64 percent with a 0.4 point. The rate is up from last week’s average of 2.63 percent. At this time last year, the rate averaged 2.79 percent.
According to the Bureau of Labor Statistics (BLS), the month of February experienced an addition of 236,000 new workers. This large economic addition helped to reduce the unemployment rate to 7.7 percent. The employment increase helped to offset the expiration of the payroll tax holiday.
In addition, retail sales increased 1.1 percent, significantly above the market consensus forecast.
In a proposed budget plan, interest rates for federal student loans will be linked to the government’s cost of borrowing.
In President Obama’s new budget request, which spans a lengthy 244 pages, several large changes to the federal student loan program were announced.
Other plans for the year’s budget include additional funding for community colleges, more federal work-study programs and increasing the maximum amount that Pell Grants deliver.
But one of the most discussed items dealing with higher education is the change to the student loan interest rate. Instead of the current system, where student loan interest rates are fixed by law and subject to congressional changes, the President’s new budget proposes changing the interest rates to market-based fluctuations.
The plan is a way to reduce the growing student loan debt problem in the country, and to reduce the overall cost of higher education. Student loan debt passed the $1 trillion in late 2011 or early 2012, and the number is not set to decrease unless large scale plans are enacted.
If the interest rate change became law, it would reduce the current cost of students’ payments. But interest rates change constantly. Since the market is on an upswing, the rates will likely rise past the current fixed rate. Unless a cap is set, student borrowers could wind up owing even more than they do now in future years.
But Obama’s plan is just that — a plan. It is not a law yet.
And critics dispute whether or not the plan has any chance of passing. Some experts believe the plan stands little chance of becoming a law, whereas others believe it will pass in the next few months.
Interest rates on unsubsidized Stafford loans are set to double to 6.8 percent on July 1, 2013 unless Congress enacts another freeze on the rates. If Congress does not pass another freeze, borrowers are predicted to owe a significant amount more.
According to a U.S. Public Interest Research Group report released Tuesday, the millions of students who owe debts on these loans will be forced to pay $1,000 or more per year.
At the very least, even if the interest rate aspect does not pass, it could still open up dialogue about the student loan debt issue. It could begin congressional debates about unique ways to reform the student loan program and how to reduce the national student debt figure.
Congress failed to agree on a deal to keep subsidized Stafford federal student loan interest rates from doubling on July 1. As a result, interest rates have risen from 3.4 percent to 6.8 percent.
Stafford federal student loans are fixed-interest college financing that is only available to students who have filled out and submitted a Free Application for Federal Student Aid (FAFSA). There is only a limited amount of money available for Stafford college loans each year, hence the need for students to quickly fill out and submit FAFSAs once a year.
Republicans supported a plan under in which interest rates would be tied to financial markets. The plan would have allegedly saved the government $3.7 billion over 10 years. Opposing Democrats allege that such a plan would only lead to student loan borrowers paying higher rates.
Democrats supported a bill that would have extended the 3.4 percent rate for an additional two years. Interestingly, the White House agreed with the Republican Party and supported locking in interest rates at the beginning of each year while tying interest rates to 10-year Treasury Bonds.
Regardless, Congress was on recess as the July 1, 2013 deadline passed, and neither plan was voted on agreed upon, resulting in the doubling of Stafford student loan interest rates.
Many financial industry observers see the government’s inaction as a direct blow to prospective student loan borrowers.
Dr. Michael Clifford, CEO and founder of DreamDegree.org, told loans.org that the government is acting like a monopolistic “predatory lender” that has all but pushed banks out of the student loan business. Clifford highlighted how restrictive student loans could be on top of the now doubled interest rates.
“There are no options other than to borrow from the government and they can’t be discharged out of bankruptcy,” he said. “The student loan business made a 15 percent return on investment. And it’s a very profitable business on the part of the government. It’s a very profitable form of taxation. It’s been sold to the public that it would cost less money for tax payers and is an efficient system when in fact it is very inefficient and it costs a lot more money.”
Clifford explained that even though student loan lenders get more money under the new higher interest rates, the money isn’t going to education. In Clifford’s eyes, the government runs student loan lending like a profitable business and doesn’t help academic institutions lower their costs. He suggested that student loan borrowers who graduate be offered a discount or rebate on their balance as both an incentive to finish their education and to help relieve student loan debt burdens.
One student loan borrower, Dr. Jane Foody, has a quarter of a million dollars of debt accrued from her doctorate of physical therapy studies. She said that while tuition keeps increasing each year, salaries for Physical Therapists and many professions have increased very little in the past 10 to 15 years.
She told loans.org that she borrowed one private student loan when she was 19 for $20,000 with an 11 percent interest rate. Not a single bank has agreed to consolidate or refinance her debt.
Dr. Foody feels that young adults shouldn’t be saddled with high interest rates.
“In today’s America and economy, many of us young adults are left working 50-60 hour work weeks with very little to show for it,” she said. “This is after we spent a decade studying and giving up fun and parties to do what we thought was the right thing for the promise of an American dream that is no longer there for the taking. A lie has been sold to many of us across this country being told we need to go to college and how college is very important.”
Dr. Foody attended an out-of-state school yet qualified for in-state tuition by working full-time and becoming a resident during her second year. However, she still needed to borrow student loans despite attending one of the most affordable physical therapy programs in the country, which cost her $70,000. On top of her already considerable debt, she then went to New York Medical College’s physical therapy graduate program which cost an additional $125,000.
People primarily go to college in order to make more money, claims Dr. Foody, however she questioned what the point of making more money was if student loan borrowers are destined to repay debts for the rest of their lives. She feels that many borrowers will never be able to pay off their loans before they retire, claiming that many of the brightest and most educated people in the country can barely pay their electric bills, much less put food on the table.
Debt stories like Dr. Foody’s personal account can instill fear and uncertainty into the hearts and minds of many upcoming college students and current college loan borrowers. But not everyone agrees that this is a time of such distress. Rather, prospective student loan borrowers may just have to be more careful with their expectations.
Hitha Prabhakar, personal finance advocate at Mint.com, told loans.org that even though the media is filled with startup news about some young entrepreneur making billions without a college degree, borrowers should be more realistic in their expectations of the probability that they can become wealthy without an education. She also cautioned that forgoing a college degree because of costs can prove even more costly later in life.
“But that’s the thing — these are one-in-a-million type stories. Having a college education is invaluable, and with spending increasing geographically too … it would be in the best interest of American students to keep the price of student loans down,” she said. “Knowledge is power and power can equal higher pay, better opportunities and an edge in the global economy.”
Even though Congress may retroactively cooperate on lowering student loan interest rates, Financial Attorney Leslie Tayne of the Law Offices of Leslie H. Tayne P.C. predicts students will become more adaptive to their overall situation, with or without legislative interest rate help.
“This increase in interest may encourage more students to find other ways to fund their college education and be wiser about their choice in college.,” she said.
Congress is currently in recess for the July 4 national holiday, but will be returning in the second week of the month. While lawmakers voted to extend the 3.4 interest rate cap last year, if Congress retroactively does so again this year, then the same situation may repeat itself in July, 2014.
On July 24, the Senate voted 81 to 18 to lower federal student loan interest rates on Stafford loans. The previous rate of 6.8 percent — which was brought into existence on July 1 due to Congressional inaction — has now been reduced to 3.86 percent.
The new rate not only applies to student loans taken out in the future, but it will apply retroactively to all financing taken out after July 1, 2013.
This agreement is not beneficial for everybody though, as graduate federal student loan borrowers and parent PLUS borrowers will now see increased rates of 9.5 percent and 10.5 percent, respectively.
The Senate agreement will also transition federal student loan interest rates into a market-based system. Following the 2015 academic year, fixed interest rates will be tied to 10-year Treasury notes.
In order to limit the amount of interest that federal student loan borrowers will be paying on their treasury-tied financing, the agreement caps interest rates at 8.25 percent for undergraduates, 9.5 percent for graduate students and 10.5 percent for PLUS loan borrowers.
Experts who spoke with loans.org have mixed reactions to the Senate’s deal.
A Bad Deal for Student Loan Borrowers
Unsurprisingly, several of these experts voiced disappointment and outrage at the Senate’s student loan deal, despite the fact that it has yet to be passed into law.
Marie Patterson, Vice President of Marketing for Hiperos, said that with the total outstanding student loan debt in the U.S. hitting $1.2 trillion and complaints lodged with the CFPB exceeding 6000, this deal will save borrowers some money but it is still not addressing the underlying problems that regulators have only just begun to notice.
“Like any other type of consumer financing, regulators are increasingly concerned about potentially fraudulent or predatory practices,” she said. “We are starting to see and expect to see greater oversight from regulators in this area, particularly in terms of how banks and other non-banking financial institutions manage their 3rd parties and any sub-contractors involved in any part of the student loan process.”
Since the new plan will tie interest rates to Treasury yields, this increase in oversight is coming at a welcome time.
The Executive Director of the California Student Aid Commission, Diane Fuentes-Michel, said that while the Stafford loan interest rate reduction is beneficial for student borrowers, it is a compromise measure.
Her assessment is proven by the slow nature of Congress’ decision making process since it has taken virtually an entire month to formulate the agreement. Now, the student loan plan heads towards the House, which may or may not take the same amount of time to deliberate the agreement’s merits.
With coming Congressional elections in 2014, Fuentes-Michel knows that new politicians and policies can shift the Senate’s student loan agreement, as can the anticipated reauthorization of the Higher Education Act in the fall. As with nearly all forms of legislation, nothing in set in stone.
Congress, far from willing to act on its own volition, was pressured by students’ outcries, according to Fuentes-Michel. With such outcry, Congress may have passed an even worse deal for students.
Despite the ruckus that some politicians have made over the federal government allegedly earning $200 billion from student loan borrowers, Fuentes-Michel is fine with such profit provided that it is reinvested into need-based federal aid and into the Pell Grant program. Doing so will allow more students to pay for college without needing to work a second job or take on additional debt.
One expert just flat-out opposes the Senate’s deal.
“It is very difficult for college students and graduate students to continue their studies in the economic environment in which we currently live,” said Bettina Seidman, Career Management Coach at SEIDBET Associates.
The cold hard facts of underemployment and unemployment for Millennials proves Seidman’s assessment true. Despite the ongoing economic recovery, recent graduates still face difficult career opportunities.
Still though, Seidman gave the government its due credit for assisting students and parents by making college more affordable, albeit now at variable interest rates. She fears, however, that these interest rates will rise and force students to postpone career choices, thus bringing a further strain on the economy’s ability to thrive.
While Seidman and other experts raised valid concerns about the Senate’s deal, other experts praised the agreement’s success and the action of the Senate to lower student loan interest rates.
The Senate Saves the Day
Ting Pen, Co-Founder of ValuePenguin, thinks that the Senate’s proposal is actually a solid deal.
“The deal provides clear and transparent direction on how student loans’ interest rates will be determined, with the added benefit of a ceiling on interest rates so that upward exposure is capped,” said Pen.
Pen does have a point in that while the new policy for student loans allows their interest rates to increase, there is a cap on how high rates can climb.
Despite the fear of interest rates being able to rise in accordance with 10-year Treasury notes, Pen thinks that the economy is currently in a low-interest environment. He does warn that as the economy rebounds, the benchmark Treasury yield will rise, thus prompting an increase in interest rates that will inch closer to the cap.
One expert praised the Senate plan yet compared it to a double-edged sword.
Robert Farrington, Founder and Editor-In-Chief of the College Investor, believes that it is possible the Senate’s agreement will both hurt and help federal student loan borrowers.
“For responsible borrowers that are going into well-paying careers, this is going to help them,” he said. “The lower interest rates for the next few years will make it easier to repay their loans.”
However, irresponsible student loan borrowers were going to struggle, regardless of any policy decisions made by the government. One example Farrington used was a student paying $50,000 for an art degree that would be difficult to repay no matter what the interest rate was.
Also, colleges and universities, the prime parties responsible for increasing tuition year after year, would be unaffected by the new agreement.
In Farrington’s view, college and university financial aid offices function like used car lots. Their sole goal is to get students to borrow student loans. He doesn’t see this situation changing until students and parents view their expected return on investment for their degrees and student loan debt. Worse still is the fact that Senate deal or no Senate deal, student loans still cannot be discharged.
“Even though there is a 35 percent delinquency rate on student loans, the repayment rate is still about 98 percent,” he said. “The reason? Student loans can never be discharged, and the lenders will get their money back through garnishment and other recourses. So, high loan rates won’t impact lenders or universities, just students who borrow more than they should.”
Another factor that Farrington thinks will trigger a cost increase for student loan borrowers is that Treasury interest rates are expected to increase past their current historical lows. Naturally, they can only increase in one direction: Up.
“However, I view that as a good thing,” said Farrington. “Students and borrowers need to be smart about how much they borrow, and smart about where they spend that money. Hopefully, more pain in repayment will help students make better decisions.”
One expert already in pain is Jill Silos-Rooney, Assistant Professor of History at MassBay Community College. “Travesty” is the word that came to her mind when she learned of the Senate’s deal.
“Tying student loans to the market is a way for others to make a fast buck, not a way to create a stable economic structure with long-term growth,” said Silos-Rooney. “Students will be so swamped with debt that they will be unable to contribute to the consumer economy through home, car, and other big ticket purchases — which is the foundation of the American economy.”
Even the CFPB has determined that high student loan debt, which will only become more a threat as interest rates rise, dampens the economy’s ability to grow as indebted borrowers delay necessary purchases that stimulate economic activity.
A student loan borrower herself, Silos-Rooney, along with her husband, have been forced to delay buying a home since their student loan debt is so massive. Each month they pay in excess of $1500 just in student loan payments.
The Senate’s deal is now headed to a vote of approval before the House of Representatives. If passed, it will proceed to the President’s desk for a signature of approval.
Home loan interest rates remained calm amid news that the government would re-open and avert a debt ceiling crisis.
Rate reports provided by loans.org show that all three interest rates changed minimally for the week ending Oct. 17, 2013. The 30-year fixed-rate mortgage averaged 4.13 percent, a miniscule increase from 4.11 percent seen last week.
The 15-year FRM did not change and remained at 3.15 percent.
The final interest rate reported, the 5/1 adjustable-rate mortgage, declined this week. It dropped from 2.89 percent to this week’s rate of 2.84 percent.
Despite a fear that the shutdown would have an all-encompassing impact on the mortgage industry, the housing market was not harmed greatly.
One fear for the market was a decline in mortgage loans due to a lack of financial information, such as Social Security verification. But a recent report by the Mortgage Bankers Association (MBA) found that mortgage applications grew for the second consecutive week.
The MBA attributed the growth to an increase in refinancing, but other experts believe that an openness from lenders helped keep the market stable.
Jonathan Hyer, senior managing consultant for American Financing Corporation, said many investors remained lenient and allowed loans to be processed without the normally-required documentation. For example, instead of a confirmation by the Social Security office, many investors accepted new mortgage loans as long as the borrower provided Social Security cards as proof.
Another expert looked past the shutdown’s impact and has instead found a rising trend.
Over the past year, home loan interest rate have increased about 1.5 percent. This change has altered the buyers in the housing market drastically, according to Daren Blomquist, vice president of RealtyTrac.
Research from RealtyTrac shows that as interest rates grew from 2012 to 2013, the rise in cash sales has also increased.
On a national scale, when interest rates were 3.60 percent in August of 2012, cash sales accounted for 30 percent of all home purchases. In August of 2013, when RealtyTrac noticed an average 30-year interest rate of 4.46 percent, cash sales comprised 45 percent of all purchases.
In a year’s time, the frequency of cash sales has increased from about one-in-three to about one-in-two. Investors that have sufficient funds to purchase a property with cash are pricing financed buyers out of the market, Blomquist said.
“There’s a plethora of cash buyers out there interested in buying real estate,” he said. “It has started to make it less affordable for those financed borrowers.”
Home loan interest rates continue their moderate changes seen last week according to rate reports supplied by loans.org.
Although this week’s interest rates changed more than last week, when two out of three rates remained the same, it was minimal. For the week leading up to Thanksgiving Day and ending on Nov. 27, 2013, the 30-year fixed rate mortgage averaged 4.16 percent. This rate was a small four-basis-point increase from one week prior.
The 15-year FRM made a similar gain, shifting from 3.11 percent to 3.15 percent this week.
The final home loan interest rate, the 5/1 adjustable-rate mortgage, increased only two basis points from 2.72 percent to 2.74 percent.
Even though the rates have stabilized in the past three weeks, there are still significant differences on a state-to-state basis. For example, an average mortgage loan on a $250,000 home in Idaho would cost less than it would cost in Ohio.
An average 30-year fixed mortgage in Idaho would be at a 4.13 percent interest rate. In comparison, the average home loan interest rate on a similar mortgage in Ohio is 4.27 percent.
Over the course of 30 years, a borrower in Idaho would repay a total of $436,446, whereas a borrower in Ohio would repay a total of $443,800.80. The small 14-basis-point difference would equate to a price difference of $7,354.80 over the course of a 30-year loan.
Beyond statewide differences, there are several factors impacting the housing market on a national scale including a negative existing home sales report, a slow holiday season and the addition of Janet Yellen at the Federal Reserve Bank of New York.
During October, total existing home sales fell 3.2 percent to a seasonally adjusted rate of 5.12 million according to the National Association of Realtors (NAR). Single-family home sales fared even worse, reducing 4.1 percent to an adjusted annual rate of 4.49 million. Despite the declines, both rates are higher than those posted one year prior.
Karyn Glubis, a realtor in the Florida area, is not surprised by the findings, stating that October is usually a slow month overall.
“Kids go back to school in September so people are staying put instead of moving,” she said but added that some buyers will return to the market in November. But any increase is likely to be minimal. Large shifts are uncommon from November to early January.
One final impact on the housing market is the change in command as Yellen takes over her position as Fed Chairman. Anytime a new chair changes, markets can be impacted according to Dan Gjeldum, senior vice president of mortgage lending at Guaranteed Rate.
The new leadership is expected to be positive for the housing industry, home loan interest rates and for consumers.
“Yellen is widely considered to be good for housing as she is of the belief that until the economy improves by the metrics put in place by the Fed, the Fed will not begin tapering their bond buying,” Gjeldum said.