Monthly Archive September 24, 2018

The Implications of High Mortgage Rates

Mortgage interest rates are rising steadily, and they are only projected to increase for the next four years. Freddie Mac reported that rates have hit their highest levels since 2011, but anything below 6% is still considered to be “good.” However, this is not necessarily a mortgage doomsday. Interpreting the implications of rising mortgage rates can be difficult, but we’re here to help.


While we may no longer have lifetime low home loan interest rates, we still have historically excellent rates. Rates hit 30-year fixed all-time lows in November of 2012, when mortgage rates bottomed out at 3.31%. In 1981, the average rate was almost 17%–an almost unthinkable figure for most current homeowners. However, in the early 1980s, the Federal Reserve was fighting inflation, and these high rates reflect that battle.


When it comes to mortgage rates, it’s all about relativity. If you experience something better, such as record lows, it’s hard to see dramatic increases—even if those increases are still lower than most yearly averages. There’s a difference between, “Your mortgage will cost around $100 more every month” and “We currently have the highest rate in over four years.” If you already have a mortgage, there is no need to panic; simply refine your budget and continue making your payments.


Going forward, it is important for potential homeowners to grow accustomed to higher mortgage rates. There will, of course, be periods of relief, but rates will continue to rise over time. Anticipate pullbacks along the way to jump on short falls, but use this as an opportunity to better budget and curb the cost of your potential home. Use a mortgage calculator to understand exactly how much you can afford to spend on a house, then only look for homes within your budget. Similarly, select the type of mortgage you’d like to have before jumping into a sale. This will allow you to better understand the costs and repayment process.


Over time, current and potential homeowners will adjust their expectations and learn to accept higher rates. In most cases, especially for those still paying off homes from the 1980s, we might even come to understand that it could, in fact, be a lot worse.



What Does the Builder’s Warranty Cover?

Buyers of newly-built homes are often interested in warranties. Known as a “builder’s warranty,” this agreement promises that the builder will repair or replace certain elements of a home if things go awry. Some of these warranties may be backed by the builder directly, while others are purchased by builders from independent companies that may assume responsibility for specific claims. In some cases, a homeowner will purchase coverage from a third-party warranty company as a way to supplement coverage provided by the builder.


Before investing in this type of warranty, it is essential to understand what’s covered and what is not covered. Additionally, you should understand the claims filing process; disputes may arise, and you should prepare to defend yourself if necessary.


In the case of newly constructed homes, most warranties will offer limited coverage on factors like workmanship and materials as they relate to components of the home. This may include windows, sliding doors, roofs, plumbing, electrical, and HVAC systems. A warranty will generally provide coverage for one- to two years, but separate components may have their own timelines. The warranty itself will define how and by whom repairs are made.


So, what’s not included? Warranties will not cover household appliances, and they rarely cover tile and drywall cracks and irrigation systems. Most builder’s warranties exclude expenses that may be incurred as a result of the repair, such as household storage.


However, you should understand that all warranties are different. Before you close on a new home purchase, ask your builder or third-party warranty provider the following questions.


  1. What does the warranty cover?
  2. What is not covered by the warranty?
  3. What is the claim process?
  4. What is the extent of your liability?
  5. Where are some of your previous projects so I can speak with owners there?


Additionally, before signing, check with your state’s Attorney General Office or contractor licensing board to ensure your builder is offering all warranties they are required to provide.