What do you need to know about higher interest rates as a buyer?

Mortgage interest rates have risen dramatically over the last several months. If you’re like many buyers who have hit the pause button waiting for rates to go back down, you may do yourself a disservice as the influx of newly available homes is providing buyers with many more homes from which to choose as well as the ability to negotiate. Interest rates are a major component of many buyers’ decisions to purchase, but should not be the sole factor in your decision-making.  As such, let’s give you a bird’s-eye-view of what you need to know about mortgage rates and why now may be the time to exploit this window of opportunity.

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Historical Perspective on Mortgage Rates

This time last year, a 30-year fixed mortgage rate was roughly 2.99% – a steal compared to the current rate now of 6.01%. Over the last few months, the rate has been hovering between the 5 – 5.5% range, which is still historically low.

When looking back over the last 50 years, the average rate for a 30-year fixed mortgage rate has been right around 8%, with the highest average ever recorded at a jaw-dropping 18.45% in 1981.

Right now, we’re in a sweet spot – somewhere in the middle between lower rates and the potential for them to climb even higher. Buying a home now may work in your best, well, interest. Here’s why:

Peering into our “Captain Obvious” crystal ball, we can see that future mortgage rates will either be higher, the same, or lower. If rates go up, you’ll be thankful you purchased at today’s price and locked into a lower rate. If rates stay the same, it is likely that the value of your home will rise over the next couple of years and it is highly likely that the value of your home will increase in the long term, thus you would have built equity. If you capture today’s price and interest rates drop at any point in the future, you can always refinance to a lower rate and still benefit from having purchased at yesterday’s price.

The Fed has been raising the Fed Funds rate to try to get inflation under control. Such increases curb inflation by inhibiting economic growth. Once inflation is checked and economic growth has stalled, the Fed will lower rates to stimulate the economy. When that happens, we can expect real estate buying activity to increase as mortgage rates go down. Such activity will create the kind of competition we experienced over the past few years. Thus, you as a buyer get to decide which battle to fight: Competition and pricing inflation, or less competition, more options and higher interest rates.

How To Get The Best Mortgage Rates

Pre-approval. Mortgage rates can vary greatly from lender to lender, so it is best to speak with several to ensure you get the combination of best rate, service and strategy. Not all lenders are created equally, so don’t just be snakecharmed by potential low rates offered by online clearinghouses. It is always best to speak with on the ground professionals, as they will partner with you to provide you with the best combination of rate, service and strategy. Loan strategy is super valuable to you as a consumer as experienced loan officers will help build loan scenarios tailored to your specific situation that will serve your financial best interests. Your best bet to move forward with a purchase is to speak with lenders, build a loan strategy that is best for you, and receive a pre-qualification letter that is your ticket to purchase.If you’re not sure where to start with finding a reputable lender, just ask us!

Seller Concessions. In the Phoenix market, the analysts at the Cromford report state that supply has risen dramatically – 92% over the last month. Meanwhile, sales are down 10% and listings under contract are also down about 17% from this same time last year. That means buyers have more bargaining power with negotiations. Here’s how that works:

As a buyer, you can make a transaction work more in your favor. A seller concession means that the seller will give you, the buyer, money toward your closing costs. You can then put some of that money toward buying down your interest rate, sometimes as much as a full percent. It ultimately depends on your credit, the home purchase price and the size of the loan, but a lender can walk you through the process.

Asking a seller for concessions is something we haven’t been able to do in the past two years because of the significant seller advantage in the market (low supply and high demand). We’re in an opportune time to do that now, depending on the situation, and apply it to lowering your overall rate.

Buy Downs. If you have enough money saved upfront to put toward your home, consider paying points at closing to buy down your interest rate. Generally, 1-point is 1% of the loan amount. In broad terms, it can make a lot of sense to buy down your mortgage rate if you plan to be in your home for a long period with the goal of refinancing down the road.

Interest Only Loan. An adjustable-rate-mortgage (ARM) is an interest rate that can change depending on market conditions, causing your mortgage payment to fluctuate. You can fix the interest rate for a certain period. One of our lender partners suggested a 7-year ARM is a better option because it’s the same rate as a 5-year arm. You get more years on it and your payment is going to be a little lower. However, this option is only good for the short-term because you’re only paying down your interest, not your principal. 

Speak To An Expert And Qualified Agent

Navigating a dynamic housing market like Phoenix is no simple task, especially when there are so many tricky nuances with fluctuating mortgage rates, and shifts in the overall market. 

At Halpern Residential, you’ll have an expert and qualified agent in your corner, helping you find the home of your dreams while crunching the numbers and helping guide you through what can sometimes be a confusing and dynamic process.

We are rooted in the local market, connected to a network of quality lenders, appraisers, lawyers, etc. – all the folks you’ll need to hold the keys to your future home. Call us when you’re ready and start your home buying journey with Halpern Residential.