Good People:
Time for an update, and a conversation about what’s most important to you as a Buyer of a home.
Firstly, know that I understand clearly what my job is. As a Buyer, of course you want me to negotiate for you the lowest price for your new home, the closing schedule that meets your plans, and for there to be no glitches or rude surprises on the way to the closing table. I get that. But there’s more.
I know too that those are not the most important things to you. This is your home we’re talking about. Home is where you live your life. Home is that place on this planet where you feel the most secure. It’s that place to which you come after a hard day at work or play. It makes up the backdrop for all the memories your kids will take with them when they leave to go out into the world to find their own homes.
That’s a conversation we need have before we get in the car. But I also know that money will play a part. And negotiating the best financial deal is very important to you. It’s important to me, too.
That said, let’s talk about interest rates. Where are they today, and, best guess, where are they going? And why is that important?
Interest rates for awhile now have been historically low, bumping down around 4.00% on very good days. Until recently. Today, with a reasonable credit score and down payment, you can find about 5% on a 30-year mortgage. Stocks have been strong, which happens when companies and the buying public are feeling good. When that happens, the government starts to worry that those companies are going to increase the prices of what they sell. That’s called inflation, and the Federal Reserve will react by making business more costly and slow things down. We’re not there today, but we’re also a long way away from the Oh-My-God days of hoping the world doesn’t fall apart. For that reason, interest rates have increased.
Following is a graph of what’s happened recently:

Don’t wait for them to come down for you. Industry experts are showing a unanimous trend line to higher rates. Following is a best guess survey from the Mortgage Bankers Association, National Association of Realtors and one of the most reputable mortgage insurance companies in the industry:

Big deal. You just want to buy a home. How will an increase in interest rates get in your way?
You’re right. This is a big deal. Sellers will be very much impacted by the selling price of their homes. Buyers, on the other hand, should pay even more attention to their costs. Here’s why.
The cost of owning a home will start with the selling price, because in part, it will determine how much money you will borrow in the form of a mortgage. The amount of the mortgage and the interest rate will determine the monthly payments. The monthly payments will go on for years, so saving some money there will be compounded.
Following is a chart of possible monthly payments for someone who wants to borrow $400,000 on a new loan. If the interest rate is 4.50%, the monthly payment (principal and interest) will be $2026. If, however, the interest rate is just 1.00% higher at 5.50%, the payment is significantly higher at $2272/month. That’s a total cost to you of almost $3000/year on your payments.

Worse, if you wanted to keep your payment at the $2026/month level, you could do that, but you’d have to lower the amount you borrow to a bit less than $360,000. That’s a smaller mortgage by more than $40,000. Assuming you don’t want to bring an additional $40,000 to the closing table, you just gave up 10% of your home.
That’s a big deal. And that’s why interest rates are very important to you as a Buyer.
If you’ve been thinking about buying a home this year, either because you want a different home or for investment, or you know someone who has, we should get together to talk soon. I’m here for you.
Enjoy the day,
Mike Moger