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How to Calculate Market Value of Property in 2023?

February 1, 2023 by Marco Santarelli

When a real estate housing market crashes, there are so many foreclosure and bank REO sales, figuring out the real value of a property can be difficult. When there is a large supply of properties available for sale in the housing market, it can be challenging to determine the true value of a specific property.

In a market with a high number of properties for sale, competition among sellers can drive down prices, making it difficult to determine what a property is worth based on current market conditions. Additionally, there may be a wide range of properties available, with varying sizes, locations, and features, making it challenging to compare properties and determine the true value of a specific property.

As a result, it can be difficult to determine the real value of a property in a housing market where there are many properties for sale. The comparable sales method is the most commonly used — and still the most accurate one — to determine the value of single-family homes, condominiums, and smaller multi-unit properties (two to four units).

How to Find Property Value Online

Start by researching information about sold properties on your local government websites for your target area. Many tax assessor's offices and county courthouses offer searchable online databases that allow you to view the prices for properties within a specific area. They usually list full details about the properties, including square footage. Plus, subscriber websites such as Electronic Appraiser (www.electronicappraiser.com) give you detailed information, particularly in areas where online data is scarce.

Free websites such as Zillow (www.zillow.com) also offer property data, but the information is less detailed than the paid sites. For example, the seller's name may be missing, which could be relevant if the seller was a bank, as in the case of a foreclosure sale. If that's the case, it can't be considered a comparable sale because the property was sold in distress.

Be careful about using websites that offer a computer-generated valuation. These are called automated valuation models (AVMs), which aggregate sales data from comparable properties to determine an estimated price. While AVMs can be a benchmark for determining value, they can be off by as much as 10% or more. With a little research, you can pinpoint the value to as close as 3 to 5% percent.

The most useful computer database for getting information about comparable properties is the local MLS. This database shows the number of days on market and includes notes that indicate whether the property was updated, whether the seller offered concessions on the sale, and so on. This additional data is generally not available through other sources, so asking a real estate agent or appraiser to help you will be crucial because most MLS systems aren't accessible to the general public.

While many factors come into play when you're evaluating a residential property's value by “comps” (comparable sales), the three key factors are location, the size (square footage) of the home, and the number of bedrooms and bathrooms. Obviously, you'll need to look at many other aspects before you can pinpoint the exact value of a property, but these are the “big three”. You should be able to look at comparable sales involving properties with these three factors and get a good idea of the value of the property you're selling

Location

Location is extremely important when you're comparing sold properties. A professional appraiser typically looks at houses within a one-mile radius or less, and so should you. In the case of a subdivision — where the houses are all similar and built in the same time period — you need to compare similar houses with similar styles in the same subdivision to get an accurate valuation.

If there's a wide mix of properties in the subdivision, you may need to go outside of it to get comparable sales. Just be careful with “dividing lines”. Geographic lines such as opposite sides of the river, the park, or a main highway can be invisible dividing lines that put the property in another school district and may not garner equitable comps.

Square Footage

When determining a home's value, be sure to evaluate the square footage. Note that appraisers typically look at homes that are within 20% up or down in square footage as comparables. Generally (especially within a subdivision), most homes fall within a fairly limited size range. Therefore, you should be able to develop a good gauge for the selling price of homes in those particular sizes.

Of course, not all square footage is created equal. Most people think that if a house has 1,000 square feet and is worth $100,000, then the 1,100 square-foot house next door would be worth $110,000. Wrong! The extra 10% in square footage equals only a few percentage points in value.

If these two houses offer the same location, style, and number of bedrooms and baths, the 10% additional square footage won't change the valuation much. Why? Because there is a fixed cost on a house based on the value of the land, cost of construction, sewer, subdivision plans, and other factors. An extra few hundred feet of space involves very little cost — only wood, nails, carpet, and possibly some minor electrical and plumbing costs.

Rooms

The number of bathrooms and bedrooms is more relevant than simply the raw square footage. In other words, a three-bedroom home with 1,200 square feet might be worth more than a two-bedroom home with 1,250 square feet. It also matters where the bedrooms and bathrooms are located – on the main floor or the basement.

While finished basements can add value, the amount of that value is less than it is for above-ground living areas. Plus, this greatly varies depending on different regions of the country. In humid areas, below-ground living space isn't as valuable to homeowners as in dryer areas of the country.

To determine a home's value using comps, also look at the quality and number of bedrooms and bathrooms. Three-bedroom homes are generally a big plus over two-bedroom homes, but four or five-bedroom homes don't add as much over a three-bedroom if they are roughly the same size in square footage. Likewise, two bathrooms are a big plus over one bathroom, but three or more don't add as much value.

When comparing bathrooms, make sure you understand the different types of bathrooms and compare them correctly. A full bathroom includes a shower, bath, toilet, and sink. A three-quarter bath has a shower but no tub, plus a toilet and sink. A half bath has a toilet and sink but no tub or shower.

A three-quarter- or full-bath creates roughly the same value, particularly if another bathroom in the house has a tub. A half bath has less value unless there are enough other bathrooms in the house. Also, a five-piece bath (separate shower and tub) generally wouldn't add more value than a regular full bathroom with a combination shower and tub.

Other Factors

There are other factors to consider that affect the value of a home, but generally, you’d give this less weight than the location, size and number of bedrooms and bathrooms. Some houses have one-car or two-car garages, some have carports and others have neither. The garage factors in some value, depending on the rest of the neighborhood.

For example, if the neighborhood comps all have two-car garages, this can affect the value as much as 10% on the subject property if it only has a one-car garage or no garage. However, if the houses are all small and there's a mix of garage options, the garage won't be as big of an issue.

Likewise, a four-car garage in a three-car garage neighborhood probably won't count for much either. One exception is with condominium developments.  Parking spots or garages are generally sold with condominiums and can have substantial value, particularly in large cities where parking is limited to the street.

In addition to looking at properties sold in your target area, you need to look at properties that are for sale. While asking prices are not sold prices, it will give you an idea of where your local market is heading – up or down. Also, keep in mind that if your strategy is to flip the property, the properties for sale are your direct competition, and thus the asking prices are very relevant.

For example, if you find properties that have sold for $150,000 but the current inventory on the market is priced at $140,000, the asking prices of your competition become just as relevant, if not more, as the sold prices of other homes.

If you regularly invest in the same neighborhood, take some time to build yourself a “due diligence” notebook of properties that have sold, are under contract, and are for sale within your area. Have your realtor check the MLS every week for new listings and sold properties so that your information is constantly up to date. Remember, you are only as good as your data, and the more information you have, the more accurate your values will be!

It's important to note that no single method is perfect and that different methods may result in different valuations. A professional appraiser or real estate agent can help to determine the most accurate market value by considering multiple methods and factors such as location, size, condition, and recent market trends. Additionally, obtaining a professional appraisal is often required when obtaining a loan or selling a property.

Filed Under: Financing, Real Estate Investing Tagged With: How to Calculate Market Value of Property, how to find property value online

Top Ten Tax Deductions for Landlords in 2023

February 1, 2023 by Marco Santarelli

No landlord would pay more than necessary for utilities or other operating expenses for a rental property. Yet millions of landlords pay more taxes on their rental income than they have to. Why? Rental real estate provides more tax benefits than almost any other investment. The cost of operating and maintaining a rental property, such as repairs, insurance, and property management fees, are tax-deductible.

This can reduce taxable income and provide a financial benefit. Every year, millions of landlords pay more taxes on their rental income than they have to. Why? Because they fail to take advantage of all the tax deductions available for owners of rental property. Investment real estate provides more tax benefits than almost any other investment. Often, these benefits make the difference between losing money and earning a profit on a rental property.

Here Are the Top Ten Tax Deductions for Owners of Residential Rental Property:

1. Interest

Interest is often a landlord's single biggest deductible expense. Common examples of interest that landlords can deduct include mortgage interest payments on loans used to acquire or improve rental property and interest on credit cards for goods or services used in a rental activity. Interest paid on a mortgage used to finance the purchase or improvement of a rental property is generally tax-deductible.

2. Depreciation

Landlords can claim depreciation on the cost of a rental property over time, which can provide a tax benefit by reducing taxable income in the short term. The actual cost of a house, apartment building, or other rental property is not fully deductible in the year in which you pay for it. Instead, landlords get back the cost of real estate through depreciation. This involves deducting a portion of the cost of the property over several years.

3. Repairs

The cost of repairing or maintaining a rental property is tax-deductible, as long as the expenses are directly related to the rental property and are not capital expenditures. The cost of repairs to rental property (provided the repairs are ordinary, necessary, and reasonable in amount) is fully deductible in the year in which they are incurred. Good examples of deductible repairs include repainting, fixing gutters or floors, fixing leaks, plastering, and replacing broken windows.

4. Local Travel

Landlords are entitled to a tax deduction whenever they drive anywhere for their rental activity. For example, when you drive to your rental building to deal with a tenant complaint or go to the hardware store to purchase a part for a repair, you can deduct your travel expenses.

If you drive a car, SUV, van, pickup, or panel truck for your rental activity (as most landlords do), you have two options for deducting your vehicle expenses. You can:

  • deduct your actual expenses (gasoline, upkeep, repairs), or
  • use the standard mileage rate (56.5 cents per mile for 2013). To qualify for the standard mileage rate, you must use the standard mileage method the first year you use a car for your business activity. Moreover, you can't use the standard mileage rate if you have claimed accelerated depreciation deductions in prior years, or have taken a Section 179 deduction for the vehicle.

5. Long-Distance Travel

Landlords can deduct travel expenses related to managing a rental property, such as the cost of traveling to inspect the property, attend tenant-landlord meetings, and make repairs. If you travel overnight for your rental activity, you can deduct your airfare, hotel bills, meals, and other expenses. If you plan your trip carefully, you can even mix landlord business with pleasure and still take a deduction.

However, IRS auditors closely scrutinize deductions for overnight travel — and many taxpayers get caught claiming these deductions without proper records to back them up. To stay within the law (and avoid unwanted attention from the IRS), you need to properly document your long-distance travel expenses.

6. Home Office

Provided they meet certain minimal requirements, landlords may deduct their home office expenses from their taxable income. This deduction applies not only to space devoted to office work but also to a workshop or any other home workspace you use for your rental business. This is true whether you own your home or apartment or are a renter.

7. Employees and Independent Contractors

Whenever you hire anyone to perform services for your rental activity, you can deduct their wages as a rental business expense. This is so whether the worker is an employee (for example, a resident manager) or an independent contractor (for example, a repair person).

8. Casualty and Theft Losses

If your rental property is damaged or destroyed from a sudden event like a fire or flood, you may be able to obtain a tax deduction for all or part of your loss. These types of losses are called casualty losses. You usually won't be able to deduct the entire cost of property damaged or destroyed by a casualty. How much you may deduct depends on how much of your property was destroyed and whether the loss was covered by insurance.

9. Insurance

Premiums paid for insurance coverage on a rental property, including liability insurance and property insurance, are tax-deductible. You can deduct the premiums you pay for almost any insurance for your rental activity. This includes fire, theft, and flood insurance for rental property, as well as landlord liability insurance. And if you have employees, you can deduct the cost of their health and workers' compensation insurance.

10. Legal and Professional Services

The cost of professional fees, such as the cost of hiring a property management company or accountant, are tax-deductible. Finally, you can deduct fees that you pay to attorneys, accountants, property management companies, real estate investment advisors, and other professionals. You can deduct these fees as operating expenses as long as the fees are paid for work related to your rental activity.

Did You Know?

Did you know that:

  • Landlords can greatly increase the depreciation deductions they receive the first few years they own rental property by using segmented depreciation.
  • Careful planning can permit you to deduct, in a single year, the cost of improvements to rental property that you would otherwise have to deduct over 27.5 years.
  • You can rent out a vacation home tax-free, in some cases.
  • Most small landlords can deduct up to $25,000 in rental property losses each year.
  • A special tax rule permits some landlords to deduct 100% of their rental property losses every year, no matter how much.
  • People who rent property to their family or friends can lose virtually all of their tax deductions.

If you didn't know any of these facts, you could be paying far more tax than you need to.

It is essential to keep in mind that certain tax deductions can be subject to limitations or restrictions and that an individual's eligibility for particular deductions might be determined by their particular tax status as well as the kind of rental property they own. Furthermore, due to the fact that landlords are required by the IRS to establish the authenticity of all tax deductions, it is essential to keep precise and comprehensive records of all costs associated with rental properties.

In a nutshell, tax deductions for landlords can assist in lowering the amount of income that is subject to taxation and provide a financial benefit. However, it is essential to have a solid understanding of the constraints and boundaries imposed by particular deductions, as well as the need of maintaining precise records to substantiate the legality of deductions claimed. As always, be sure to consult with your tax adviser or tax professional.

Filed Under: Financing, Real Estate Investing, Taxes Tagged With: Tax Deductions, Tax Deductions for Landlords

How to Apply and Qualify for a Mortgage Loan Modification?

January 28, 2023 by Marco Santarelli

What is Mortgage Loan Modification?

A mortgage loan modification is a change to the terms of an existing mortgage loan made to make the loan more affordable for the borrower. Changes to the interest rate, loan term, or loan amount are examples of this. A loan modification is intended to assist the borrower in avoiding foreclosure by lowering their monthly mortgage payments to a more manageable level.

Loan modifications can be accomplished in a variety of ways, the most common of which is by lowering the interest rate or extending the loan term. This can reduce the borrower's monthly payment, making it more affordable. A loan modification may also include a change to the loan's principal balance, known as a “principal reduction,” which reduces the monthly payment.

When a borrower is experiencing financial hardship, such as a loss of income, an increase in expenses, or an unexpected event that makes it difficult to keep up with mortgage payments, loan modification is usually recommended. It's important to note that loan modification is not a one-time fix; it's a process that can take time to complete and may not work for all borrowers. The lender must approve the modification, and it is critical to communicate with them throughout the process.

How to Apply and Qualify for a Mortgage Loan Modification?

Before you apply for a mortgage loan modification, it's important for you to understand the lender guidelines and whether or not you qualify for one. A mortgage loan modification is an adjustment to your mortgage by your lender with the intention of cooperating with you in situations where you are having financial difficulties. The objective is to make your loan more reasonable, taking into account your present financial condition so that it becomes manageable for you.

Before you make a decision to pursue a mortgage loan modification, you must determine whether you are eligible and fall under the guidelines of a mortgage loan modification. Mortgage loan modification guidelines vary from one lender to another. Some common guidelines required by every lender include information on your gross and net income, whether you have fallen behind on your mortgage payments, how much equity you have in your property, and whether or not your property value is less than what you owe on your mortgage.

To apply and qualify for a mortgage loan modification, you will typically need to follow these steps:

Contact your lender: The first step is to reach out to your lender and let them know that you are having difficulty making your mortgage payments. Your lender will likely have a specific department or process in place to handle loan modification requests.

Gather documentation: You will need to provide documentation to your lender to demonstrate your financial hardship and ability to repay the modified loan. This may include tax returns, pay stubs, bank statements, and other financial documents.

Complete a loan modification application: Your lender will likely provide you with a loan modification application that you will need to complete and return. This will typically include information about your income, expenses, and assets.

Submit the application and documentation: Once you have completed the application and gathered all of the necessary documentation, you will need to submit it to your lender for review.

Wait for a decision: Your lender will review your application and documentation to determine if you qualify for a loan modification. This process can take several weeks or even months.

Complete the modification process: If your lender approves your loan modification, you will need to complete any additional steps, such as signing new loan documents or completing a trial period, before the modification can take effect.

In order to modify your mortgage loan, you will need to furnish the following documents:

  • Hardship letter
  • Borrower and co-borrower information sheet
  • Proof of income (W2's or 1099's)
  • Financial worksheet (also known as an income and expense sheet)

The majority of people stay away from carrying out a mortgage loan modification on their own since they have very little knowledge of the process, who they should communicate with, and what forms are necessary to carry out the modification. Above all, people simply don't understand all the modification guidelines.

Once you're familiar with your lender's guidelines, you can prepare your modification package for submission based on your hardship situation. A majority of lenders would consider the following conditions as a hardship:

  • Job loss or unemployment
  • Hospitalization for illness
  • Death of a family member
  • Divorce
  • Adjustment of a mortgage loan to a higher interest rate
  • Inability to work
  • Entering into a contract with a fraudulent lender

In addition to the hardship letter, your financial worksheet plays an extremely significant role in your mortgage loan modification. Your lender may not approve your particular hardship because of your current income and expenses. For example, you may not qualify if your NEW mortgage payment will exceed 30% of your current monthly income. The lender wants to be sure that you can cover your monthly payment and other expenses. Again, knowing your lender's modification guidelines is very important to a successful outcome.

It's important to note that the process and requirements for loan modifications can vary depending on the lender and the type of loan you have. Additionally, the government has different programs like HAMP (Home Affordable Modification Program) that can help homeowners to qualify for a loan modification. It's always recommended to get in touch with a housing counselor or attorney to understand the process better and to make sure that your paperwork is completed correctly.

Filed Under: Financing, General Real Estate Tagged With: Home Loan Modification, Mortgage Loan, Mortgage Loan Modification

Projected Interest Rates in 5 Years: How Much Will Rates Rise?

December 18, 2022 by Marco Santarelli

Projected Interest Rates in 5 Years

Projected Interest Rates in 5 Years

Unless you have a crystal ball that can predict the future, it's impossible to know how much interest rates will rise in the coming five years. Pent-up demand, especially for travel, means inadequate supply to chains still rocked by COVID-19, but Russia's invasion of Ukraine and energy insecurity have raised oil and gas prices.

It implies central bankers are uncertain how successful monetary tightening will be against many mitigating factors, with rate rises potentially adding pain without resolving rising prices. Interest rates are projected to rise in the near term as policymakers try to ward off 40-year-high inflation, but they are expected to peak soon thanks to expectations of a recession in the US.

The OECD predicts that inflation would decline steadily over the next 18 months, reaching 5.7% by the end of this year and 2.8% by the end of 2023. Capital Economics thinks inflation will reach 2.6% by 2024, while the CBO anticipates inflation will average 2.4% between 2026 and 2031.

In a 27 July note from Barclays shared with Capital.com, analysts Joseph Abate and Jonathan Millar said interest rate movements over the next year could be volatile and depended on the level of bank reserves through its schedule of quantitative tightening (QT), the process of taking liquidity and demand out of the market.

In 2022, CBO expects inflation to remain high due to factors that keep supply growing slower than demand in product and labor markets. CBO expects inflation to exceed the Fed's 2 percent long-term goal in 2023 before approaching it in 2024. The agency anticipates 2022 short-term interest rates to rise substantially. In 2022, long-term interest rates are predicted to rise significantly from their 2021 lows. After 2022, CBO forecasts short- and long-term interest rates to climb slower.

In 2022 and 2023, the Federal Reserve is expected to rapidly increase the target range for the federal funds rate to reduce inflationary pressures in the economy. In CBO’s projections, the interest rate on 3-month Treasury bills follows a similar path, rising to 1.4 percent by the fourth quarter of 2022, 2.3 percent by the fourth quarter of 2023, and 2.6 percent by the fourth quarter of 2024.

The Federal Reserve is expected to reduce the target range for the federal funds rate in 2025 to counteract the drag on economic growth stemming from the higher individual income tax rates that take effect at the beginning of 2026 under current law. Accordingly, in CBO’s projections, the 3-month Treasury bill rate will fall to 2.4 percent by the fourth quarter of 2026.

Due to rising short-term rates, long-term Treasury bond interest rates are likely to grow until 2026. Long-term interest rates are partially determined by investors’ expectations about the future path of short-term interest rates. Potential purchasers of long-term bonds weigh those bonds’ yields against the yields from purchasing a series of shorter-term bonds (for example, purchasing a 1-year bond each year for 10 years).

In order to sell all long-term bonds, the yield rises when short-term interest rates rise. As the Federal Reserve tightens monetary policy, the interest rate on 10-year Treasury notes will climb from 1.5 percent in the fourth quarter of 2021 to 2.7 percent in the fourth quarter of 2022, indicating a higher future path for short-term interest rates. After 2022, 10-year Treasury note interest rates are expected to rise steadily to 2.9 percent in the fourth quarter of 2023 and 3.1 percent in 2024.

Part of the increase in interest rates on long-term Treasury securities through 2026 is attributable to an increase in term premiums. A term premium compensates bondholders for long-term bond risk. In the years before the pandemic, investors' concerns about poor global economic growth and demand for long-term Treasury securities as a hedge against unanticipated inflation fall drove term premiums to historically low levels.

CBO predicts those variables to fade, raising term rates. It anticipates that the Federal Reserve's reduction in its portfolio of long-term assets will raise interest rates on long-term Treasury securities for two reasons:

First, shrinking its balance sheet indicates to investors that the Federal Reserve is dedicated to tightening monetary policy and, as a result, is likely to continue rising the federal funds rate target range, enhancing investors' expectations about the future direction of short-term interest rates.

Second, the Federal Reserve's technique for shrinking its balance sheet tends to reduce demand for long-term bonds more than it does for short-term ones. All else being equal, the strategy results in lower long-term bond prices and higher yields.

Mortgage Interest Rate Projections for 5 Years

Projected Interest Rates in 5 Years
Image Source: FreeImages‍

If you're planning on mortgaging your home at least until age 55 and possibly beyond, you should start looking into how much interest rates are likely to go up in the coming decade. If you don't already understand how much interest rates affect your wallet, this article will explain everything you need to know about projected interest rates in the next five years and what that means for you as a borrower.

Mortgage interest rates determine the interest you pay on your home loan. When you get your house loan approved, the lender will usually project what interest rates are likely to be and then you can decide if you want to go with that interest rate or some other available option. But when you ask what is the interest rate, you're not just looking at what rate is listed on the contract, you're also taking into account what rate is likely to go up in the future and what will happen to rates if new laws are passed.

Mortgage interest rates follow the same pattern as the stock market does, with periods of high profitability followed by periods of low profitability. As was the case with stocks, homeowners who take out a mortgage are at a particular advantage, as they can lock in a higher rate of return by waiting until the market is profitable again. If the market performs poorly for a prolonged period of time, homeowners are stuck with high-interest rates. That's not good for you or your house price.

A number of factors can affect your mortgage interest rate, including the total amount of your mortgage loan, the mortgage terms, and the health of the housing market. According to algorithm-based forecasting service Longforecast's interest rate projections, the 30-year mortgage rate in the United States, which is strongly tied to the Fed's base rate, is forecasted to reach 17.81% by November 2026, a significant increase from the present rate of roughly 7.04%.

Mortgage Interest Rate Projected Forecast 2022

According to Longforecast, the 30 Year Mortgage Rate forecast at the end of the year 2022 is projected to be 7.62%.

30-Year Mortgage Rate forecast for October 2022

  • Maximum interest rate 7.13%, minimum 6.71%.
  • The average for the month is 6.92%.
  • The 30 Year Mortgage Rate forecast at the end of the month is 6.92%.

30-Year Mortgage Rate forecast for November 2022

  • Maximum interest rate 7.41%, minimum 6.92%.
  • The average for the month is 7.11%.
  • The 30 Year Mortgage Rate forecast at the end of the month is 7.19%.

30-Year Mortgage Rate forecast for December 2022

  • Maximum interest rate 7.85%, minimum 7.19%.
  • The average for the month was 7.46%.
  • The 30 Year Mortgage Rate forecast at the end of the month is 7.62%.

Mortgage Interest Rate Predictions for 2023

According to Longforecast, the 30 Year Mortgage Rate will continue to rise further in 2023. The 30 Year Mortgage Rate forecast at the end of the year is projected to be 11.87%.

30-Year Mortgage Interest Rate Forecast for January 2023

  • Maximum interest rate 8.32%, minimum 7.62%.
  • The average for the month is 7.91%.
  • The 30 Year Mortgage Rate forecast at the end of the month is 8.08%.

30-Year Mortgage Interest Rate Forecast for February 2023

  • Maximum interest rate 8.53%, minimum 8.03%.
  • The average for the month is 8.23%.
  • The 30 Year Mortgage Rate forecast at the end of the month is 8.28%.

30-Year Mortgage Interest Rate Forecast for March 2023

  • Maximum interest rate 8.66%, minimum 8.16%.
  • The average for the month 8.38%.
  • The 30 Year Mortgage Rate forecast at the end of the month 8.41%.

30-Year Mortgage Interest Rate Forecast for April 2023

  • Maximum interest rate 9.18%, minimum 8.41%.
  • The average for the month 8.73%.
  • The 30 Year Mortgage Rate forecast at the end of the month 8.91%.

30-Year Mortgage Interest Rate Forecast for May 2023

  • Maximum interest rate 9.18%, minimum 8.64%.
  • The average for the month 8.91%.
  • The 30 Year Mortgage Rate forecast at the end of the month 8.91%.

30-Year Mortgage Interest Rate Forecast for June 2023

  • Maximum interest rate 9.72%, minimum 8.91%.
  • The average for the month 9.25%.
  • The 30 Year Mortgage Rate forecast at the end of the month 9.44%.

30-Year Mortgage Interest Rate Forecast for July 2023

  • Maximum interest rate 10.31%, minimum 9.44%.
  • The average for the month 9.80%.
  • The 30 Year Mortgage Rate forecast at the end of the month 10.01%.

30-Year Mortgage Interest Rate Forecast for August 2023

  • Maximum interest rate 10.92%, minimum 10.01%.
  • The average for the month 10.39%.
  • The 30 Year Mortgage Rate forecast at the end of the month 10.60%.

30-Year Mortgage Interest Rate Forecast for September 2023

  • Maximum interest rate 11.58%, minimum 10.60%.
  • The average for the month 11.01%.
  • The 30 Year Mortgage Rate forecast at the end of the month 11.24%.

30-Year Mortgage Interest Rate Forecast for October 2023

  • Maximum interest rate 12.03%, minimum 11.24%.
  • The average for the month 11.55%.
  • The 30 Year Mortgage Rate forecast at the end of the month 11.68%.

30-Year Mortgage Interest Rate Forecast for November 2023

  • Maximum interest rate 12.51%, minimum 11.68%.
  • The average for the month 12.01%.
  • The 30 Year Mortgage Rate forecast at the end of the month 12.15%.

30-Year Mortgage Interest Rate Forecast for December 2023

  • Maximum interest rate 12.23%, minimum 11.51%.
  • The average for the month 11.94%.
  • The 30 Year Mortgage Rate forecast at the end of the month 11.87%.

Also Read: Mortgage Interest Rates Forecast 2022 & 2023

Mortgage Interest Rate Projected Forecast 2024

According to Longforecast, the 30 Year Mortgage Rate will continue to rise further in 2024. The 30 Year Mortgage Rate forecast at the end of the year is projected to be 13.9%.

Month Low-High Close
Jan-24 10.05-10.97 10.65
Feb-24 10.14-10.76 10.45
Mar-24 10.33-10.97 10.65
Apr-24 10.65-11.31 10.98
May-24 10.98-11.66 11.32
Jun-24 10.79-11.45 11.12
Jul-24 10.99-11.67 11.33
Aug-24 11.33-12.22 11.86
Sep-24 11.86-12.94 12.56
Oct-24 12.46-13.24 12.85
Nov-24 12.65-13.43 13.04
Dec-24 12.79-13.59 13.19

30-Year Mortgage Interest Rate Projected Forecast 2025

The 30 Year Mortgage Rate will continue to rise further in 2025. The 30 Year Mortgage Rate forecast at the end of the year is projected to be 16.25%.

Month Low-High Close
Jan-2025 15.37-16.33 15.85
Feb-2025 15.05-15.99 15.52
Mar-2025 15.26-16.20 15.73
Apr-2025 15.16-16.10 15.63
May-2025 15.36-16.30 15.83
Jun-2025 15.53-16.49 16.01
Jul-2025 15.11-16.05 15.58
Aug-2025 15.36-16.30 15.83
Sep-2025 15.58-16.54 16.06
Oct-2025 15.32-16.26 15.79
Nov-2025 15.60-16.56 16.08
Dec-2025 15.76-16.74 16.25

Mortgage Interest Rate Projected Forecast 2026

The 30 Year Mortgage Rate will continue to rise further in 2026. The 30 Year Mortgage Rate forecast at the end of the year is projected to be 17.81%.

Month Low-High Close
Jan-2026 15.72-16.70 16.21
Feb-2026 16.21-17.25 16.75
Mar-2026 16.30-17.30 16.8
Apr-2026 16.11-17.11 16.61
May-2026 16.40-17.42 16.91
Jun-2026 16.28-17.28 16.78
Jul-2026 16.57-17.59 17.08
Aug-2026 16.75-17.79 17.27
Sep-2026 17.27-18.41 17.87
Oct-2026 17.71-18.81 18.26
Nov-2026 17.28-18.34 17.81

It should be noted that analysts' and algorithm-based projections can be incorrect. Interest rate estimates should not be utilized in place of your own study. Always conduct your own research. Furthermore, never invest or trade money that you cannot afford to lose.

Why Should You Care About Projection of Interest Rates?

The higher the interest rate, the less attractive the opportunity to borrow money at that rate is for you as a homebuyer. As a result, it could make more sense to borrow at a lower rate, especially if you have a modest amount to spend on a home and are looking for a low-interest loan. If you are running behind on payments and have a limited amount of equity, a higher interest rate could make you borrow money from your workers' compensation fund or a government program that provides short-term loans.

It could also mean higher insurance costs or a higher cost of living once you move in. If you have money to invest and would instead put that money in something that earns more interest than a mortgage, you should know that rates on savings accounts and mutual funds are likely to go up as well, not down.

How Much Interest Will You Pay?

This is one of the most important factors to keep in mind when you're looking at projected interest rates. It is not just the price of the mortgage that is important – it is the interest rate you pay on every dollar you borrow. If you are refinancing an existing loan, the amount you will be paying will depend on your current interest rate and the total amount of your loan. If you are buying a new house, your interest rate will be lower than if you are refinancing an existing home as that is the type of loan we refer to as a ” cash-out refinance.”

What Are Other Factors That Affect Your Payment?

When you compare interest rates for different cities, you are ignoring other factors that could affect your monthly payment. For example, if you are refinancing an existing loan and are in a city where house prices are low, you will pay less interest than if you were in a city where house prices are higher. These other factors can include taxes, insurance, building costs, and utilities.

Conclusion

When it comes to the future of mortgage interest, we don't know exactly what will happen. That is why it is important to get a feel for what the projected rates are so you can plan ahead and decide if any of these rates are right for you and your financial situation. If you are currently working with a lender and are interested in switching providers, you should know that most lenders are required to give you 30 days' notice before changing rates. Even then, you will only be given a 25% discount on the new rate if you want it.


Sources:

  • https://www.cbo.gov/publication/58147
  • https://capital.com/projected-interest-rates-in-5-years
  • https://longforecast.com/mortgage-interest-rates-forecast-2017-2018-2019-2020-2021-30-year-15-year
  • https://www.noradarealestate.com/blog/mortgage-interest-rates-forecast/

Filed Under: Financing, General Real Estate, Mortgage Tagged With: interest rates, Interest Rates forecast, Projected Interest Rates, Projected Interest Rates in 5 Years

Real Estate Notes Investing: Should You Buy Notes in 2022?

November 23, 2022 by Marco Santarelli

Mortgage note investing is one of the most profitable real estate investment strategies accessible, yet it receives little attention. We will explore the many forms of mortgage notes and how to invest in them in this article. Mortgage note investing is the process of owning real estate without managing it or becoming a landlord, in which the homeowner pays the investor rather than the bank. It is a low-cost method of investing in real estate.

Note investing can be an incredible vehicle for building passive income but there are many things that you should be aware of. Mortgage notes are also known as real estate lien notes and borrower’s notes and they have become a popular asset class over the past few years. Investing in mortgage notes has many benefits such as — rates of return that are higher than the bank's traditional low-yield bonds; and higher than most stock dividends.

Notes are available through note exchanges, note brokers, and organizations. Both performing and non-performing notes are almost always sold at a discounted price, although non-performing notes will likely sell for steeper discounts, and real estate investors can realize significant profits. Consider using a mortgage broker or an investment advisor to help you find the best options. If you are experienced enough, you can potentially find and purchase your mortgage notes. 

What is a Mortgage Note?

real estate mortgage note investing

A real estate mortgage note is a promissory note secured by a mortgage loan. It’s a way of saying promissory notes secured by a piece of property. That security instrument can be either a mortgage or a Deed of Trust. It depends on what state you’re doing business in or which security instrument you’re using.

So, you’ve got a note, which is the promise to pay, or a promissory note. Then that is piggybacked with another document which is the security instrument, and that’s either a mortgage or a Deed of Trust depending on what state you’re in. It’s a two-part instrument and they move together.

The promise to pay is called a promissory note, which states how big the loan is, the interest rate, and the terms of the loan. That security instrument which is the mortgage note or the Deed of Trust, that’s the thing that ties that note to the piece of property, and what makes that promise to pay have much strength.

It’s either the borrower pays you as agreed or you get to foreclose on that property, and ideally foreclose on that property for pennies on the dollar. The difference between a mortgage and a Deed of Trust is that a Deed of Trust is what’s called a non-judicial foreclosure action. If someone doesn’t pay you, then you file a notice in the public record that it’s such and such a date.

On the courthouse steps, this property will be auctioned for sale. That’s it. As long as you comply with the timing and the noticing, then that sale goes through. A mortgage is different from a Deed of Trust in that you have to go to court to get the court to foreclose on the property for you. As an example, when you take out a home loan, the lender will probably require you to sign both a promissory note and a mortgage.

Suppose you want to buy a property worth $150,000 but you don't have enough cash. In this case, you can apply for a loan whereby you can pay part of the purchase price as a down payment and borrow the remaining amount from a lender. Normally, you need to pay 20% as a down payment.

Therefore, the loan amount would be $120,000. In exchange for $120,000, the lender would make you sign a promissory note and a mortgage. Here a promissory note is being signed by you as a borrower, and it is a promise to repay the debt incurred by you in the purchase of your property.

The note will state who borrowed money from whom, the loan amount, the interest rate, the tenure of repayment, and what happens in the event of a default. A mortgage is a separate document that collateralizes the lender and is secured by the property. It is a contract that hypothecates a lien on the property, or the mortgage deed may be updated to specifically give the lender foreclosure property if contractual terms aren’t met. It will say who is personally responsible for the debt, whether it is an individual, a couple, or a corporation.

The Contract For Deed vs Mortgage

A contract for deed is an agreement to buy a home from a seller, while the seller keeps ownership of the home. It is not the same as a mortgage loan. The buyer agrees to pay the seller monthly payments, and the deed is turned over to the buyer when all payments have been made. Buyers make their payments directly to the seller for a certain number of years and then a balloon payment (or remaining balance) is due.

One major difference is you do not have the same protection rights, since the seller retains ownership. The seller determines the
interest rate and how much of your payment is used to pay the principal (or balance). Generally, you pay the seller directly for property taxes and insurance. Unlike a traditional mortgage, a defaulting buyer in contact for deed may only have 30-60 days to cure the default or move out.

With a mortgage note secured by the mortgage deed, sellers don’t have to go through foreclosure proceedings to seize the property. A seller can terminate the contract right away without going through all of the legal procedures required for a mortgage holder to foreclose on a home.

If the seller cancels the contract you have 60 days to resolve the reason. If the contract is not reinstated, you are required to leave the home. You also lose any money you have paid the seller.

Different Types of Real Estate Mortgage Notes

There are both commercial and residential mortgage notes, and both are open to investors. They’re both promissory notes secured by a certain property. All mortgage notes should specify the roles and responsibilities of all parties and what qualifies as a breach of the agreement. One of the major differences between real estate mortgage notes is the loan terms.

Fixed-Rate Mortgage Loans

A fixed-rate mortgage or FRM is a loan that has a fixed interest rate and set payments. This is the most common type of mortgage offered by banks, but it can be offered by private individuals. The greatest benefit of this loan is that the borrower has the same payment every month.

The Graduated Payment Mortgage

The graduated payment mortgage or GPM has a fixed interest rate with adjusting payments. It typically has a low initial monthly payment that increases over time. These loans are sometimes used for student loans, but they can be found in real estate, too. This is a type of negative amortization loan. There is a risk that the person who purchased the home will be unable to make the later, higher payments.

An Adjustable Rate Mortgage

An adjustable-rate mortgage or ARM has an interest rate tied to some third-party indices. Banks will tie the interest rate on the adjustable rate to the interest rate offered by the Federal Reserve, and the interest rate on the mortgage will rise and fall with it. This is why they’re sometimes called variable-rate mortgages. For consumers, the ARM may result in lower payments when interest rates are low.

However, it brings the risk that they can’t afford their house payment when interest rates rise. Lenders are protected from losses if interest rates rise. Private lenders have to deal with more complicated loan administration. Buyers have the option of sending in the same monthly payment, but the amount of principle applied to the loan with each payment varies.

A Balloon Payment Mortgage

A balloon payment mortgage is generally a fixed-rate mortgage with a large payment due at the end. This is in contrast with traditional mortgages where the final payment pays off the debt entirely. Balloon payments may be accepted by a borrower who can’t manage the monthly payments without them.

They may hope to qualify for a conventional home loan at the end of the private mortgage to get the money to pay off the balloon payment. The occupant runs the risk of losing the home if they can’t make the balloon payment. This is separate from the mortgage acceleration clause that makes the entire amount due after a payment is missed.

The Interest-Only Loan

An interest-only loan is a mortgage where the person only pays interest on the loan. Some people take out an interest-only loan because they can’t afford to pay on the principle. This borrower demographic is very high risk. Yet interest-only loans are attractive because of the low monthly payments. This is a popular loan for property developers. You get the money to buy the property. You expect to sell it for a profit and pay off the mortgage note.

Interest-only loans were commonly used in hot real estate markets before the Great Recession, but they’ve almost disappeared from the residential real estate market because people aren’t making progress on the loan balance. This left many people underwater, owning more than their home was worth.

In these cases, people are expected to be able to refinance the interest rate mortgage into a fixed-rate mortgage once the home’s value has appreciated. The interest-only mortgage had the benefit of allowing them to get into a home now before prices went up further. These loans often became negative amortization loans, because financially stressed people missed payments and saw the total loan balance increase.

Minimum payments that didn’t even cover the full interest payment led to an accrued interest to compound, as well. We consider interest-only loans to be a high risk unless you’re dealing with a real estate developer. Interest-only hard money loans would fall into this category. You can issue an interest-only loan with a recast period, where you force them to refinance the loan or pay off your loan with a third-party mortgage after a set period of time.

Real Estate Mortgage Note Investing

Mortgage notes can be a good real estate investment for people seeking passive income. When you buy a mortgage note, you receive monthly payments that include both interest and principle. It is a steady stream of income like you’d receive from a rental property, but there is no need to maintain the property like a landlord.

It is far easier to invest in real estate located around the country because you don’t have to deal with local rules regarding real estate licensing or taxes. The mortgage note spells out the loan duration. You know how long you’ll receive loan payments, and it may be 10 to 30 years. You may be able to increase the value of the mortgage note by buying from a distressed note holder. For example, you may find a farm or family property sold via owner financing.

The person sold their home, but now they have to manage the loan. They may require the money, whether it is to allow them to buy a new home or simply get cash to fund their retirement. In these cases, you might offer 80,000 dollars to buy a 100,000-dollar note. If they accept, you receive the interest and principal on a 100,000-dollar loan but only paid 20,000 dollars for it.

Another class of desperate sellers is the private lender with a slow or non-paying borrower. They’re not getting the income they expected. They may be reluctant to foreclose on a slow-paying family member. Or they may not want the property back.

You can buy these notes for far less than their face value. However, you’re going to either need to ramp up collection efforts or foreclose on the property. Only buy notes like this if you have a plan for how to monetize the property, whether you rent it out, sell it to someone else or redevelop the property.

Advantages of Buying a Real Estate Mortgage Note

  • High Yield Returns – Rates of return that are higher than the bank's traditional low yield bonds; and higher than most stock dividends.
  • Monthly Income – If you are looking for additional monthly income for retirement, for living expenses, or to build your savings account, we can help.
  • IRA Friendly – This investment provides investors with a way to put to use their self-directed traditional IRA or Roth IRA.  We can recommend several custodian companies that handle the paperwork and hold your IRA while the funds are invested with us.
  • Rollover Option – Option to automatically roll over your investment so you don’t miss out on earning interest or future investment opportunities.

How To Buy To Real Estate Mortgage Notes?

It is hard to find the farmer who sold their property to an up-and-coming farmer or family member who wants to sell the note so they have the money they need to pay for long-term care. This is why many investors go through brokers to find mortgage notes for sale. These brokers specialize in locating both private and public deals.

There are even online marketplaces like NotesDirect to help you find, vet, and buy notes. You can try to find deals through real estate investor groups. In this case, you’re buying notes from people who trade future income for liquid funds. Mortgage notes are often associated with owner financing.

You might find mortgage notes for sale by going through for-sale-by-owner groups and making offers to former property owners who are desperate for cash. Furthermore, mortgage notes may be sold by real estate investor groups or real estate investment trusts.

In the latter case, you could even buy a mortgage for a multi-family apartment building. If you are buying a nonperforming mortgage, investing in real estate notes is one of the cheapest ways to acquire such properties.

how to invest in mortgage notes

Buying a Non-Performing Note vs Performing Mortgage Note

A non-performing note is a note where the borrower is not paying as agreed. The borrower who is behind on their loan payments or regularly made late payments is the reason why you have non-performing notes. Performing notes are those where the payments are made on time and in full. Performing notes sell for 75 to 100 percent of their current value. Sub-performing notes can be found for 50 to 80 percent of their current value.

That lower price tag is what attracts some investors. They’re also priced to factor in the risk of someone who hasn’t paid their mortgage in the past 15 to 60 days or has had missed payments in the past.

Non-performing notes are notes that are already in default. They are attractive to investors because you might buy the property for 10 to 30 percent of its actual value. It can be a cheap way to buy a real estate investment property. It does come with the hassle of renegotiating the deal (rarely done) or foreclosing on the property.

If you’re considering buying a mortgage note for a multifamily property, you cannot consider the property without doing detailed research. It doesn’t matter if they have almost every unit full if only half the tenants are paying their rent. What is the property’s condition? You don’t want to buy a multi-family property that is falling apart.

The Risks of Investing in Mortgage Notes

These notes are not FDIC insured. Instead, it is secured by a property whose condition may not be great. And you’re not responsible for its upkeep. Yet you want to verify the condition of the property before you buy it, or else you’re paying less than the property is worth. You run the risk of having to pay money to get what you’re owed.

You will have to pay various legal fees to foreclose on the property. You may have to sue to get back mortgage payments, too. Know the foreclosure laws for the area where the property is located, especially if you’re considering buying a non-performing loan. Non-performing assets also depreciate because while your expenses continue the property is most likely not be well kept. Even if there is some appreciation in the property value, it is usually offset by the expenses you are spending. They have a high risk of default which is bad for your cash flow.

The mortgage note investing industry is not very regulated as of now. Before entering the mortgage note investing space know the fact that this is a risky business. You can buy a mortgage note without the permission of the person who lives in the property. When you buy a note and mortgage from the lender, you're buying the debt that remains to be paid on the note, secured by the asset outlined in the mortgage.

You're not buying the property. Sometimes, you do run the risk of property owners initially refusing to pay you because they don’t think they owe you the money. The solution to this is good communication, including the initial note holder informing them that the loan is being transferred.

Do your research. Don’t buy a multi-family property note before you know the percentage of the units that are occupied by rent-paying tenants. Know if you have a say in the property manager in charge of the property because putting a good one in could increase occupancy rates, payment rates, or even the average monthly rent.

Know how to get a copy of the original note along with all amendments and assignments. You don’t want to buy a mortgage note and get sued by someone else who had the title. You may want to pay a title search company to do such a search before you buy the note, though this is an expense you have to pay out of pocket even if you don’t buy it. Know your lien position, so that the house isn’t sold to pay a different creditor while you get less than you’re owed.

Summary

Real estate mortgage notes may allow you to get a regular stream of income without the hassles of a landlord, or you can buy the note and sell it later to another investor. Or it can be a way to secure properties for less than their market value. But real estate mortgage notes are a good way to invest in real estate with relatively little work beyond the initial search and purchase.

Also Read: Mortgage Interest Rates Forecast 2022 & 2023


References

  • https://en.wikipedia.org/wiki/Mortgage_note
  • http://www.differencebetween.net/business/finance-business-2/difference-between-mortgage-and-note
  • https://www.fool.com/millionacres/real-estate-investing/articles/complete-guide-investing-real-estate-mortgage-notes/#
  • https://www.realtor.com/advice/finance/what-is-a-mortgage-note/
  • https://www.multihousingnews.com/post/6-things-to-consider-before-purchasing-non-performing-notes
    https://money.usnews.com/investing/real-estate-investments/articles/why-buying-mortgage-notes-are-good-real-estate-investments
  • https://www.multihousingnews.com/post/6-things-to-consider-before-purchasing-non-performing-notes
    https://www.biggerpockets.com/blog/2011-02-09-differences-performing-and-non-performing-notes
  • https://noteinvestor.com/how-to-buy-mortgage-notes

Filed Under: Financing, Real Estate Investing, Real Estate Investments

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