Hawaii might have a reputation as a vacation paradise, but it’s also home to almost 1.5 million residents. Know what mortgage rates to expect in Hawaii to help you evaluate mortgage offers and make an informed decision.
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Quick Look: Best Mortgage Lenders in Hawaii
- Bank of Hawaii: Best Overall
- First Hawaiian Bank: Best Customer Service
- Guild Mortgage: Best for Less-than-perfect Credit
- Chase Bank: Best for First-time Home Buyers
- Veterans United: Best for VA Loans
What is a Mortgage Rate?
When you borrow money from a financial institution, that financial institution expects you to pay it back with interest. A mortgage is a loan to either purchase or refinance a home. Your mortgage rate is the amount of interest you will need to pay on your home loan.
Mortgage rates tend to be relatively modest compared to other financial products. Credit cards, for example, may have interest rates over 20%. Over the past decade, mortgage rates have been 5% or less, according to FreddieMac.
What Factors Impact Your Mortgage Rate?
The mortgage rates Hawaii homeowners can expect depend on several factors. These include economic factors, which mortgage options you choose and your financial picture.
Economic factors are high-level factors that impact everyone seeking a mortgage. These include:
- Inflation: You’ve probably noticed that things cost more now than they did in the past. Gas prices used to be less than $1 per gallon, now it’s $3 or more per gallon depending on where you live. This is due to inflation, which is how far your money goes. Lenders need to ensure that their interest rates outpace inflation so they make money on mortgages. As you might imagine, higher inflation means higher interest rates.
- Economic growth: Mortgage rates can trend upward when the economy is doing well — it’s due to supply and demand. Lenders only have so much money to lend and when the economy does well, there’s more demand for mortgages and lenders can charge more in interest.
The type of mortgage you choose also impacts your mortgage rate. A fixed-rate mortgage will have a higher initial rate than an adjustable-rate mortgage (more on that below). A 15-year mortgage will have lower interest rates than a 30-year mortgage.
- Financial factors: Lenders expect you to repay your loan. A lender will look at your finances to decide whether you’re a high-risk borrower or a low-risk one. Lenders offer high-risk borrowers higher interest rates than lower-risk borrowers. Lenders consider:
- Your ability to repay your loan. Lenders look at your gross income and your monthly debt payments to determine your ability to repay. This is called your debt-to-income (DTI) ratio. The Consumer Financial Protection Bureau recommends a DTI ratio of 43% or lower. This means that your potential mortgage payment and your monthly payment toward debts (your car loan, your credit card minimums, etc.) must be less than 43% of your gross (pre-tax) income.
- Your credit history: Lenders look at your credit report to determine whether you’re likely to pay your mortgage. A history of on-time payments and responsible credit usage makes you an appealing borrower. Let’s say you have a history of missed payments and accounts in collections — you might still qualify for a mortgage, but you’ll have a higher interest rate.
Every lender is different, which is why getting multiple purchase quotes is essential to getting the best rate.
What is a Mortgage Type?
Mortgages come in a variety of flavors. Federal government agencies insure some mortgages, which allows lenders to offer mortgages to a broader range of borrowers.
- FHA mortgages: The Federal Housing Administration is part of the Department of Housing and Urban Development. Lenders that offer FHA mortgages are able to work with borrowers who have lower credit scores. If you qualify for an FHA mortgage, you can make a down payment of as little as 3.5% of the purchase price.
- USDA mortgages: The United States Department of Agriculture insures mortgages that low- to moderate-income borrowers can use to purchase rural homes.
- VA mortgages: The Veterans Administration backs loans for current service members as well as veterans. You may be able to get a home with no down payment if you meet the VA’s qualifications.
- Conventional: A conventional mortgage is a mortgage that isn’t insured by a government agency. It’s a catch-all term, and conventional mortgage requirements and terms vary from lender to lender.
Ask what mortgage type(s) would be the best for your situation as you contact lenders for purchase or refinance quotes.
What is a Mortgage Term?
A mortgage term is the length of time your mortgage will last if you make the required monthly payments each month and make no extra payments. The shorter your mortgage term, the lower your interest rate will be.
- 30-year fixed: A 30-year fixed-rate mortgage is a popular choice because it has the lowest monthly payments. These mortgages have higher interest rates than shorter terms. Your interest rate remains stable for the life of the mortgage in a 30-year fixed-rate mortgage. In other words, if you pay your required monthly payment, your mortgage will end and your home will be paid off in 30 years.
- 15-year fixed: A 15-year fixed-rate mortgage also offers one interest rate for the life of the mortgage. You’ll own your home outright in 15 years if you pay your monthly payment and no more.
- 5/1 ARM: A 5/1 ARM is an adjustable-rate mortgage. Adjustable-rate mortgages start with an initial fixed-rate period. For example, a 5/1 ARM means the interest rate is stable for the first 5 years you have the mortgage. The initial rate might be lower than a comparable fixed-rate mortgage. After the first 5 years, the rate will adjust once per year. The interest may increase or decrease — it depends on mortgage rates at that time.
Current Mortgage Rates in Hawaii
Mortgage rates change every day, and sometimes multiple times per day. This is due to economic factors, which can nudge rates up or down a smidge. Even though rates might only change by 0.05%, that can make a big difference. This is because mortgages are so large that even a tiny interest rate difference can cost you thousands in interest over the life of your loan.
Benzinga updates mortgage rates frequently to reflect these changes.
|Loan Type||Current Mortgage Rate|
|5/1 ARM (adjustable rate)||3.22%|
Calculating Interest in Hawaii
Lenders calculate your interest rate each month. Each payment you make on your mortgage means you’ll pay interest as well as the full amount you owe on your home. Your lender calculates your interest based on how much you owe on your home.
Over time, your loan balance gets smaller and you owe less interest. This means that more of your monthly payment goes towards your balance. This process is referred to as amortization.
Here is a look at how much you might pay in interest on a Hawaii mortgage.
|City||Average Home Value||Loan Term||Current Rate||Monthly Payment||Total Interest Paid|
|Pearl City||$717,000||30-year fixed||3.64%||$3,275.94||$462,339.91|
Lender Credit Score Minimums in Hawaii
Your credit score is a mathematical model based on your credit history. Credit scores range from 300-850, and the higher your credit score is, the better rates you’ll get on your mortgage.
Lenders use credit scores to get an idea of whether or not you’re likely to repay your mortgage. Lenders also have a minimum credit score that they will accept for a mortgage.
|Lender||Minimum Credit Score Required|
|Bank of America||620|
|Caliber Home Loans||620|
5 Best Mortgage Lenders in Hawaii
Here are the 5 best mortgage companies in Hawaii, thoroughly researched by Benzinga.
1. Best Overall: Bank of Hawaii
It’s hard to beat the biggest residential lender in Hawaii. Bank of Hawaii knows Hawaii’s market inside and out. It offers competitive mortgage rates and branches across the state.
You can choose from an in-person or online application process, and if there are hiccups, you’re not far from the nearest branch.
2. Best for Customer Service: First Hawaiian Bank
First Hawaiian Bank is a growing player in the Hawaii mortgage market — and for good reason. It offers stellar customer service, even after you start paying on your mortgage.
First Hawaiian Bank handles all of its customer service in-house, so you can talk to a real person if you run into any bumps along the road. First Hawaiian Bank offers a full range of mortgage products including construction mortgages and land loans.
3. Best for Less-Than-Perfect Credit: Guild Mortgage
Guild Mortgage offers a variety of mortgage programs, including one geared to those with unique or challenging financial situations. Its Expanded loan program offers flexible requirements.
If you have a lower credit score or you have erratic income, Guild Mortgage will take a close look at your situation and work with you to help you qualify. As with any lender, nothing is guaranteed, but it’s nice to know Guild Mortgage has an open mind.
4. Best for First-Time Homebuyers: Chase Bank
Chase Bank offers an easy-to-understand process and transparent mortgage rates, which makes it ideal for first-time homebuyers. You can choose from an online or in-person application process and you can work with a loan officer who specializes in working with first-time homeowners.
Chase offers a full range of mortgage products and videos to explain each mortgage option. The clear process and educational support makes Chase a great lender for first-time buyers.
5. Best for VA Loans: Navy Federal Credit Union
Navy Federal Credit Union has a reputation for stellar customer service. Servicemembers and their families and Department of Defense employees are eligible to join.
Navy Federal Credit Union specializes in VA loans and also offers other mortgage options as well if you don’t qualify for a VA loan or if you’ve exhausted your benefits.
Final Thoughts on Hawaii Mortgages
Hawaii has a unique housing market. Homes are pricey — the median for single-family homes at $673,125 in August 2019, according to Hawai’i Realtors. The market is also competitive.
What does this mean for you? It means you should work closely with a lender to prepare for homeownership, and once you’re ready, move quickly when you see the right home.
Frequently Asked Questions
1) Q: How do I get pre-approved?
First, you need to fill out an application and submit it to the lender of your choice. For the application you need 2 previous years of tax returns including your W-2’s, your pay stub for past month, 2 months worth of bank statements and the lender will run your credit report. Once the application is submitted and processed it takes anywhere from 2-7 days to be approved or denied. Check out our top lenders and lock in your rate today!
2) Q: How much interest will I pay?
Interest that you will pay is based on the interest rate that you received at the time of loan origination, how much you borrowed and the term of the loan. If you borrow $208,800 at 3.62% then over the course of a 30-year loan you will pay $133,793.14 in interest, assuming you make the monthly payment of $951.65. For a purchase mortgage rate get a quote here. If you are looking to refinance you can get started quickly here.
3) Q: How much should I save for a down payment?
Most lenders will recommend that you save at least 20% of the cost of the home for a down payment. It is wise to save at least 20% because the more you put down, the lower your monthly payment will be and ultimately you will save on interest costs as well. In the event that you are unable to save 20% there are several home buyer programs and assistance, especially for first-time buyers. Check out the lenders that specialize in making the home buying experience a breeze.