Market Watch

Posted

Prosperity Home Mortgage

How’s the market? That is likely the most common question that anyone in real estate or lending gets.  

There are a lot of different ways to take that question. But on the lending side, the basis of that question boils down to a primary focus: What is happening with the rates? As most people are already aware, rates have been on the rise and look to continue down that path. So, the real question ultimately becomes: Did I miss out on good rates? Am I still able to afford mortgage financing? What will happen to me if I continue to wait?  Here’s the good news for everyone: You definitely haven’t missed out on getting historically low interest rates, the impact is likely less than what you think and there are programs to help guard you against this market movement.  

Let’s start with the rates. While they fluctuate daily, the average 30-year fixed program is still commonly under 5 percent with no points! That is a rise of roughly 0.5 percent from this point a year ago. While thoughts of the bottom of the market and seeing rates fall below 4 percent may cloud our view, being below 5 percent is still a historically low rate. 

Let’s use this as an example. Think back to when the market collapsed in 2001. Refinances were at an all-time high because the drop-in rates allowed millions of Americans to refinance and take advantage of amazing savings. What was the average interest rate then?  6.92 percent! We’re almost 2 percent lower today than the time when the country was in awe over the rates available and couldn’t rush into refinance fast enough. All that to say it’s still an amazing time to take advantage of the market, even if they do continue to move up.  

So, what does the rise in interest rates mean to me and my potential payments? The answer may surprise you in that you haven’t been impacted by as much as you think. To help give perspective, a change of 0.125 percent in the interest rates only moves your payment up $7.61 per 100,000 in loans. Considering the average loan in the state of Florida is just under 200,000, that means the change in rates over the last year (0.5 percent) only leads to an increase of $61.52 a month. Not as much as you would think, right? Don’t get me wrong, taking advantage of the best rates possible is always the best move financially, but you can rest at ease that the impact is likely less on your monthly budget than you thought.  

So, what happens if you continue to wait? Almost all experts consider the rate increases to continue for the foreseeable future. Making the decision to rent for another year, or holding off on refinancing for a while longer, likely means you’ll be entering the market at a higher point than what you can get today. I mentioned just before that these changes likely won’t preclude you from being able to qualify, but it’s certainly beneficial to act now and avoid the extra costs if possible. 

In the example below, rates moving up 0.5 percent costs the average person $61.52 based on a $200,000 loan amount. While that isn’t an insurmountable cost on a monthly basis, it all adds up. That change would mean you’re paying $738.24 more a year and would end up paying $22,147.20 more over the life of a 30-year loan. Adds up quickly, doesn’t it?  For those on the fence, it certainly benefits to act sooner than later to take advantage of the rates in as low a point as you possibly can.  

What’s the best way to keep yourself safe from these changes? As I mentioned above, one way is to make sure you’re acting as soon as possible to avoid what most forecast to be a continued climb in rates. Another way is to find a lender that will allow you to protect your interest rates while you’re shopping so you’re not impacted by market movement. 

At Prosperity Home Mortgage, we have a program called Lock and Shop where we offer clients a 90-day rate lock for FREE to help keep you safe while you find your dream home. No cost and no exposure to the market? Absolutely! The other thing you want to make sure you’re doing is talking to a trusted REALTOR to understand the impacts in the market you’re shopping in. 

Housing markets change constantly so understanding the market on both the rental and purchase sides can help provide clarity for your decision and make sure you’re putting you and your family in the best position. Whether it’s today, in the near future or down the line, knowledge is power and opportunities abundant to accomplish your goals.