While the house flipping market is hot and investors like you are on the hunt for the next killer fix and flip deal, the economic climate in the traditional mortgage/conventional loan industry is shifting from post-recession which means mortgage interest rates are on the rise and forecasted to keep climbing. According to Forbes.com in the week ending June 6, 2013 the 30-year fixed rate mortgage clocked 3.91% in its fifth consecutive weekly gain, according to Freddie Mac, after hitting its highest level in a year the week before. That’s 18% higher than the 3.31% record low set in November of 2012 and almost 17% higher than the 3.35% rate logged in the beginning of May. The 15-year fixed rate broke above 3% as well, to 3.03%.
Flash forward to April 2014 and rising conventional interest rates are the talk of Wall Street and Main Street once again. Long-term rates, like fixed conventional bank mortgages, are driven by the market and until recently the Fed’s purchases of Treasuries and mortgage bonds have successfully held down long-term rates. According to financial expert Nellie Huang from Kiplinger.com’s personal finance team, as the economy improves and those purchases continue to shrink, long-term rates will inevitably rise. This may also have an impact on non-traditional lending, although somewhat less dramatic, since the fix/flip hard money loans we handle here at Center Street are not based on market rates.
“Mortgage rates—even initial rates on adjustable-rate loans—will grind higher in 2014, says McBride. Kiplinger’s expects the 30-year fixed-rate mortgage, recently just over 4.4%, to rise to 5% or 5.5% by year-end. That won’t halt the real estate recovery. A one percentage point rise from current rates means an extra $61 in monthly payments on a $100,000, 30-year loan. Still, consider locking in your rate once you have set your closing date. For credit cards and home-equity loans, 2014 could be the last hurrah for low rates, says McBride. Pay down your variable-rate debt before rates rise.” Read more at Kiplinger.com.
With conventional interest rates rising a better solution may be to look toward private funding through hard money, equity-backed loans(our specialty!). Qualification for this type of loan is typically easier and funding can happen within 24-48 hours instead of a traditional 30-day close. This gives you the bidding advantage in hot real estate markets flush with cash investors. While there are some differences when looking at hard money loans vs. conventional, hard money loans do not base the interest rates on market rates, there are a lot ofadvantages for the fix/flip investor.
Whether you’re a small fix/flip real estate investor with only one or two projects in the fire or a big player with dozens of projects in motion at a time, be aware that your profit margins may change in the months ahead as these economic projections of interest rate hikes come to fruition. It may be time to look at a non-conventional lender like Center Street to close your investment transactions rather than traversing through the often painful process of conventional bank lending to save a couple of percentage points.
TAKE NOTE: Center Street is now offering a 3-5 year rental investment loan program. Now is a great time to lock in your rate for the next 3 years with our rental program and avoid future interest rate spikes! Call (949) 244-1090 for details! fINA
Stay tuned to Center Street Lending for the hard money loan market rates and loan terms for short-term fix/flip investors and expert advice on hard money loans.
To your success,
The Center Street Lending Team