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In the wake of the COVID-19 lockdowns the mortgage market saw explosive growth, with a surge in mortgage refinance volumes as the Federal Reserve pinned rates at zero, engaged in quantitative easing, and purchased over a trillion Dollars worth of mortgage backed securities.
Residential lending has fallen for 11 of 12 quarters after reaching a peak during the refinance boom after COVID-19 lockdowns. Attom data's 2024 U.S. Residential Property Mortgage Origination Report highlighted loan volumes fell 4.8% year over year in the first quarter of 2024, making a 69.3% fall from the 2021 peak.
In the first quarter there were 565,000 purchase loans, 491,000 refinances, and 222,000 new HELOC issued.
Home prices rose during the COVID-19 lockdowns as governments printed money to offset the decline in economic output. The money printing led to a hot economy with high rates of inflation, which in turn led to one of the fastest hiking cycles in the history of the FOMC. As the FOMC raised the federal funds rate mortgage rates followed higher. Rents have also increased sharply over the last few years, with the FBI conducting a probe into how RealPage's software may have been used to manipulate rental prices.
With increased rents, high inflation, higher mortgage rates, and increased home prices some home buyers have struggled to save up for down payments. FHA loans allow buyers to put only 3.5% down on a home while also having less strict credit requirements, making them a popular choice for first-time homebuyers. USDA loans allow homebuyers in rural areas to pay as little as 0% down. VA loans allow active duty military and verterans to purchase homes with no money down. Fannie Mae's HomeReady loan only requires 3% down, and they offer some low income buyers a $2,500 credit which can be applied toward the down payment and closing costs.
In most cases when a homebuyer buys a house with a mortgage they take out a new mortgage and the old mortgage from the prior owner is paid off. Roughly 12.2 million loans - or 23% of all active mortgages - have assumable mortgages, which allow the buyer to retain the mortgage from the seller, and have the payments transferred across. If the seller obtained their mortgage when rates were low around the time of the COVID-19 lockdowns any buyer who gets an assumable mortgage retains the rate.
Most conventional mortgages are not assumable, though most VA loans and FHA loans are. In 2023 there were over 6,000 assumptions complete. There are a variety of startups like Roam, AssumeList, and FHA Pros which help home buyers search for properties with assumable mortgages. Loan assumptions take longer than a cash purchase or a purchase with a traditional loan, with the typical deal closing in 45 to 90 days.
Homeowners who wanted to access home equity could do so historically in most market set ups through a refinance loan. The low rates which existed during the COVID-19 lockdowns coupled with the fast rate hiking cycle makes owners less interested in trading in their old mortgage for a new one at a far higher interest rate.
A reasonable alternative to refinancing a mortgage is to keep the existing first mortgage with the low interest rate and instead use a HELOC to tap home equity, so that only a small portion of your debt gets reset higher to current market conditions while the first mortgage retains low rates.
In April Freddie Mac proposed with the FHFA the ability to securitize closed-end second mortgages for borrowers which it already owns the first mortgage of. This proposal is still under consideration. If approved it would likely cause the spread between first mortgages and second mortgages to narrow as the second mortgages would have a broad securitation ecosystem to sell into.
Historically banks and lenders affiliated with large banks provided most mortgage loans. The housing bubble from the 2005 to 2008 timeframe saw nonbank lenders grow their share of the loan origination and servicing market. When the housing market turned south the United States government's FHFA put Fannie Mae and Freddie Mac in conservatorship, which they remain in to this day.
New bank regulations which came into effect after the Great Recession led many banks to further constrict their mortgage lending and instead fund nonbank mortgage companies. In the decade and a half since the Great Recession nonbank lenders have become increasingly vital to the smooth functioning of the mortgage market. In 2024 the Financial Stability Oversight Council published a report on Nonbank Mortgage Servicing highlighting how the industry has changed.
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The above tool estimates monthly mortgage payments with taxes, insurance, PMI, HOA fees & more.
Click on the "define" & "more" tabs for a description of each input & how they are used in calculations.
Set an input to zero to remove it from the calculation.
If property tax is 20 or below the calculator treats it as an annual assessment percentage based on the home's price. If property tax is set above 20 the calculator presumes the amount entered is the annual assessment amount.
Home Value: the appraised value of a home. This is used in part to determine if property mortgage insurance (PMI) is needed.
Loan Amount: the amount a borrower is borrowing against the home. If the loan amount is above 80% of the appraisal then PMI is required until the loan is paid off enough to where the Loan-to-value (LTV) is below 80%.
Interest Rate: this is the quoted APR a bank charges the borrower. In some cases a borrower may want to pay points to lower the effective interest rate. In general discount points are a better value if the borrower intends to live in the home for an extended period of time & they expect interest rates to rise. If the buyer believes interest rates will fall or plans on moving in a few years then points are a less compelling option. This calculator can help home buyers figure out if it makes sense to buy points to lower their rate of interest. For your convenience we also publish current local mortgage rates.
Loan Term: the number of years the loan is scheduled to be paid over. The 30-year fixed-rate loan is the most common term in the United States, but as the economy has went through more frequent booms & busts this century it can make sense to purchase a smaller home with a 15-year mortgage. If a home buyer opts for a 30-year loan, most of their early payments will go toward interest on the loan. Extra payments applied directly to the principal early in the loan term can save many years off the life of the loan.
Property Tax: this is the local rate home owners are charged to pay for various municipal expenses. Those who rent ultimately pay this expense as part of their rent as it is reflected in their rental price. One can't simply look at the old property tax payment on a home to determine what they will be on a forward basis, as the assessed value of the home & the effective rate may change over time. Real estate portals like Zillow, Trulia, Realtor.com, Redfin, Homes.com & Movoto list current & historical property tax payments on many properties. If property tax is 20 or below the calculator treats it as an annual assessment percentage based on the home's price. If property tax is set above 20 the calculator presumes the amount entered is the annual assessment amount.
PMI: Property mortgage insurance policies insure the lender gets paid if the borrower does not repay the loan. PMI is only required on conventional mortgages if they have a Loan-to-value (LTV) above 80%. Some home buyers take out a second mortgage to use as part of their downpayment on the first loan to help bypass PMI requirements. FHA & VA loans have different down payment & loan insurance requirements which are reflected in their monthly payments.
Homeowners insurance: most homeowner policies cover things like loss of use, personal property within the home, dwelling & structural damage & liability. Typically earthquakes & floods are excluded due to the geographic concentration of damage which would often bankrupt local insurance providers. Historically flood insurance has been heavily subsidized by the United States federal government, however in the recent home price recovery some low lying areas in Florida have not recovered as quickly as the rest of the market due in part to dramatically increasing flood insurance premiums.
HOA: home owner's association dues are common in condos & other shared-property communities. They cover routine maintenance of the building along with structural issues. Be aware that depending on build quality HOA fees can rise significantly 10 to 15 years after a structure is built, as any issues with build quality begin to emerge.
Our site also publishes an in-depth glossary of industry-related terms here.
