Texas mortgage rates can fluctuate depending on what part of the state you are in, which determines the median list price of homes, in conjunction with your own finances. Before buying a home, it's best to know the basics on mortgage loans and the various markets around Texas.
What Types of Loans Are Available in Texas?
Fixed-rate mortgages are standard mortgages in the home loan industry that offer individuals a way to making monthly payments at a fixed interest rate. This means the interest rate does not change over time or after a set period of time. This makes mortgage payments a predictable issue, with monthly payments of principal and interest remaining consistent from month to month. Over the course of time a fixed mortgage is set, the rate will not change. Mortgages are typically distributed in 30- and 15-year loans. While the interest rate on a shorter loan will typically be lower, a 30-year loan provides greater time for individuals to repay the loan. This can be advantageous to individuals whose finances are unsettled, and individuals can still choose to pay back more whenever they choose. Taking out a 30-year loan means you will pay less month to month, but you will also have to pay back a larger sum overall versus a 15-year loan, due to higher interest rates.
Fixed rate mortgages have several advantages over an adjustable rate mortgage. If interest rates are likely to rise over the next few years, the interest rate on your mortgage loan will go up after the rate is adjusted. Fixed rate mortgages provide you with security and a stable interest rate that will not rise alongside rising interest rates. Fixed rates also bring a peace of mind to individuals who seek stability from month to month and year to year. Adjustable rate mortgages, with their changing interest rates, do not possess the same stability.
Adjustable rate mortgages have interest rates that change over time. These changes are based on a financial index associated with the loan that was made. Indexes are used to determine the annual percentage rate on a loan and how much that rate will change at the beginning of a period of time. There are specific indexes used to determine the interest rate on loans whose interest rate is not fixed. If the rate is set higher, your monthly payments will go up, and if the rate is set lower, your monthly payments will go down.
A 5/1 Adjustable Rate Mortgage is based on these principles. The “5” represents a five year period during which the interest rate is fixed. The “1” represents the fact that every year afterward, the interest rate will be recalculated and adjusted. There are many variations of the adjustable rate mortgage that feature a fixed period of interest rate followed by adjustments, and ARM loans are set to last a maximum of 30 years. In home loans, the 5/1 ARM is very common and usually listed alongside 30- and 15-year fixed mortgage rates.
How Do the Mortgage Rates Vary Across the State?
The mortgage rates being offered around Texas vary from location to location. The sheer size of the state divides Texas into several major metropolitan zones around Austin, Dallas-Fort Worth, Houston, and San Antonio. Where you choose to live will rely on your finances in combination with the local median list price of homes and the type of annual percentage rate you might expect to find in a given area.
Austin is one of the most expensive places to live in Texas, and the median list price for a home in the area is $489,000. A down payment of $90,000 would be equivalent to only 18 percent of the total payment, but could still net you an annual percentage rate as low as 2.9 percent to as high as 3.6 percent. Before taxes and insurance, you would pay $1,792. After taxes and insurance, that payment would rise to $2,795. The estimated monthly payments reflect the high cost of living and the premium real estate that the area of Austin commands.
The median list price for a home in the Dallas area is $399,000. Assuming you paid the list price and made a down payment of $90,000, or roughly 23 percent of the total purchase price, your annual percentage rate on your home payments could range from 3.6 percent to 3.8 percent. Assuming you paid 3.8 percent, this means your monthly payments in principal and interest would be $1,431 per month. After taking property taxes and homeowners insurance into consideration, you would be paying $2,270 per month.
The median list price for homes around Houston are lower, at around $349,000. A down payment of $90,000 would be equivalent to 26 percent of the total payment and allow you to get an annual percentage rate as low as 3.4 percent and as high as 3.8 percent. Assuming that you paid the 3.8 percent interest rate, your monthly payments on principal and interest would be $1,199 before taxes and insurance, and $1,947 after taxes.
Of all the major Texas cities, San Antonio may be the most affordable with a median list price of only $230,000. With a down payment of $90,000, you would be able to get an interest rate as low as 3.4 percent to as high as 4 percent on a home in the San Antonio area. If you were to pay the upper interest rate at 4 percent, your monthly payment would be a low $1,253 per month. This reflects the lower cost of living available in San Antonio.
What Are the Predictions for 2016?
The Texas market has been relatively stable since the recent dip in the oil market that caused massive fluctuations in the state’s economy. However, because of ongoing changes in the overseas oil market, a fixed rate interest loan is probably in your best interest. Taking advantage of the stability of a fixed rate could have a long term payoff should there be future spikes in the oil market, which seems likely given ongoing global domestic issues in oil production.
2 Point Highlight
Fixed rate mortgages have several advantages over an adjustable rate mortgage.
Taking advantage of the stability of a fixed rate could have a long term payoff should there be future spikes in the oil market, which seems likely given ongoing global domestic issues in oil production.
