Will Rehab Loan Rates Rise in 2015?

Mortgage interest rates just seem to keep plummeting and many speculators are saying that this can’t last forever. With 30-year fixed mortgage rates falling to less than 4% across the country, rehab loans and mortgages for fix and flip projects have fallen, as well, so many believe this means we’ll inevitably see a reversion to the mean. But are they right and will it happen in 2015?

To answer this question, let’s first take a look at some history. To take the example of adjustable-rate mortgages, which are usually a bit lower but follow the same trend line as fixed-rate mortgages, we see a pretty steep fall in interest rates:
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Data source: Federal Housing Finance Agency

This chart shows ARM (adjustable-rate mortgage) rates from January 2013 to November 2014. It shows two things. First, the prognostications have been wrong. Back in 2013, mortgage rates were expected to rise and keep rising, which is why we saw interest rates spike in early 2013 as speculators anticipated further rises in the future. But since spiking in early 2013, interest rates have continued to fall.

Secondly and more importantly, it shows that interest rates did not go up throughout 2014, when there was a pretty consistent trend towards cheaper and cheaper credit. The big question is whether this will continue in 2015 or if we’ll see a further fall in the coming months.

The fact is, the latter is likely to be the case for three big reasons:

1. The Federal Reserve and Bond Rates

The relationship is complex, but interest rates on U.S. bonds have a direct impact on the mortgage market. Many are anticipating a rise in interest rates when the Federal Reserve raises interest rates in the second half of 2015. However, this may not happen at all. Although Federal Reserve President Janet Yellen has hinted that she will raise rates in 2015, it’s important to remember that this has happened many times before. Back in 2009, many expected the Fed to raise rates as early as 2011, and the Fed hinted as much around then. However, it never happened. In fact, rates fell even lower.

2. Supply and Demand

Another big trend is that there are more people looking to finance real estate. It’s obvious that real estate is back. Prices are going up, demand is rising, and the market is strong. Holders of capital want to get in on this, meaning there is a bigger interest in supplying credit to rehabbers and flippers.

Of course, the basic law of supply and demand suggests that those creditors’ profits will go down as the supply of credit goes up. This is great for lenders because it means interest rates are going down.

3. Cheap Oil

Finally, we get to oil. The cost of oil has become a huge issue throughout the economy. Cheaper oil has a lot of effects, and one of them is on mortgage rates. With cheap oil, there is less inflation in the economy, which means lower rates on credit. Again, this spells out the same thing: cheap credit for real estate developers.

How to Get Cheap Credit

If you are a real estate flipper, rehabber, or developer, you can get flexible financing solutions for your real estate project from a specialist creditor who knows and understands your market. Socotra Capital can provide you with the hard money loan for your needs, even offering same-day pre-qualification so you can get started right away. Whether you just need a little extra help to finish a remodel or you’re starting a ground-up construction project, we can help.

Your real estate assets are your best investments for the future. At Socotra Capital, we’re proud to be the premier direct hard money lender for California real estate. Contact us today to learn more about how we can help. 

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