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We must face reality & common sense in the real estate market. Interest Rates will rise !!!!

By Jeff Belonger

Mortgage and Lending with Social Media - Infinity Home Mortgage Company, Inc

April 08, 2010 03:46 AM

BE PREPARED – Ready & Armed for any curve balls in today's market

mortgage interest rates on the rise

Mortgage Interest Rates have been on the rise. People need to be aware of this, especially if you are shopping for a mortgage and you are already tight on your mortgage payment. When your loan officer pre-qualifies you, they should always show you a comparison with rates about 1/4% higher than today's market. Just that 1/4% in rate could make a difference in regards to your housing budget or just for the fact that you might not qualify now.

Overall, I think too many of us, even loan officers, have been to complacent with the rates because they have been so low for the last several years now. This post is not to cause panic or instill fear, but to make you aware of possible changes down the road. I wrote about interests possibly moving higher a few months ago. Mortgage Interest Rates - Things you need to know. Since I have written this, rates have literally gone up about 1/4%. I will give details in the differences below.

Article about rates being the highest in the last 8 months. 30 yr fixed rate hits 8 month high - Keep in mind, they talk about so many new jobs, but more jobs were lost than gained. The news can be very misleading when it says it has added 162,000 new jobs. But again, they don't talk about what jobs were lost in this time period. Just more reason to why rates will rise and not just based on less jobless claims. As mentioned, there are many different factors that move rates up or down.

interest rates compared to mortgage payment

Some important input :

I have heard some real estate agents and loan officers state that you should wait because housing prices will drop some. So many fail to think through this statement, because if rates went up, would this really matter? In my opinion, so many are stuck on the fact that you don't want to be upside down on your house. You should be buying your home as a long term investment. Especially if you have kids in a good school system, chances are you would be in that house for 10 + years. Now, you could be relocated because of your job or because of a few other things. Hence why you really need to plan when buying a new home and just say that you will worry about other obstacles when they happen. But in my opinion, who cares if you are upside down early on, if you love the neighborhood and the school system. I truly believe that values will increase some down the road. But keep in mind, you will be paying down your mortgage at the same time.

2 Examples of Rate Increases for the WORST

Example # 1 - Just showing what a higher rate will do to your mortgage payment. The example below is based on a $250,000 mortgage amount.

mortgage interest rates on the rise

After doing mortgages for 17 + years now, I know that even a $50 increase can make a huge difference. Some of us would then say that borrower shouldn't be buying a home then. But is that a fair assumption? Everyone has some sort of cut off point. When I qualify a borrower, one of my first questions is to ask them how much of a mortgage payment that they are comfortable with, not to exceed. You know how many borrowers are asked what kind of purchase price that they would like? More that are focused on price and not payment. I really try to get people to understand that they should not focus on the interest rate, and focus more on the payment. Just food for thought.

Example # 2 - Showing you that waiting for prices to come down might not make a difference.

mortgage comparison

Here is a good example showing you that you are paying off more principal with a lower rate even though your mortgage amount is more. In 10 years, instead of it being a $25,000 gap, it is now a $17,115 gap in regards to what you owe on the higher mortgage amount.

Summary : Please stop listening to people that suggest you wait for the values to drop even more. I don't have a crystal ball, but I would speculate that rates will continue to climb throughout the summer, unless the government or someone else comes back into the market and starts to buy up the MBS's. (Mortgage Back Securities) Yes, there are many variables that weren't mentioned that can affect interest rates. But the mortgage interest rates have been low for too long and this will hurt us in the long run.

Food for thought - If you are very serious in purchasing a new home, feel very comfortable with a specific monthly mortgage payment, and feel secure in a few other areas of your life.... then buy now, don't wait.

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Gabe Sanders

Real Estate of Florida specializing in Martin County Residential Homes, Condos and Land Sales - Stuart, FL

Stuart Florida Real Estate

Great post Jeff. I wrote something similar recently, but not as well as you do.

Apr 08, 2010 10:45 PM

Catherine Chaudemanche - Edison & Central NJ

Metuchen Keller Williams Elite Realty / Middlesex County, NJ - Edison, NJ

Full Time, Informed and Involved- Results Driven

Yes, those tables are a easy way for buyers to understand the effects of rates. I will re-blog later. Thank you again Jeff.

Apr 08, 2010 10:57 PM

Drick Ward Property Management / Broker Assoc

NEPTUNE REALTY - Virginia Beach, VA

"RealtorDrick" - Experienced Representation

Fortunately, I haven't heard many people in my market lately say they want to wait - we've started on recovery locally and are well positioned. Unfortunately, rates have risen quickly of late and although the overall rise will be relatively slow and rates will not return to credit card rates, every rise means less house buying power as you point out. Home buyers needn't be hasty, but they don't have time to wait too long either - they should secure a great agent and act swiftly to locate and lock in on the house they want before interest rate changes put it out of reach. Great post, thanks for explaining it so beautifully.

Apr 08, 2010 11:00 PM

Jeff Belonger

Social Media - Infinity Home Mortgage Company, Inc - Cherry Hill, NJ

The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans

REBECCA... . as some have mentioned, we have been spoiled for a few years.. so yes, if you are prepared to buy, buy now. thanks

DON.... . I had a lot of proxy errors yesterday when blogging this and when logging back on. In any case, thanks for that polite compliment.

GABE.... . I'll check it out and thanks for the kind words.

CATHERINE... . I think any time you can show charts and or tables, it makes it a lot easier than just reading something with numbers in a paragraph. Here is a good example of many posts that I have written with tables. FHA loans vs Conventional Loans And thanks for reblogging this.

DRICK.... . Maybe those that are waiting aren't talking to you...? But I have heard some real estate professionals and read what they wrote, telling people to wait until prices come down some more. But yes, overall, rates have risen some and this could put a damper on some buyers. thanks for the very polite compliment.

Apr 09, 2010 12:43 AM

Jeff Wilmoth

Barrett Financial Group, LLC - Senoia, GA

If you need a mortgage, call us! 404-597-5662.

Good stuff Jeff! I'll look forward to those coming out from underneath their rock, in shock, when rates hit even higher. I suspect tough times ahead...

Apr 09, 2010 02:00 AM

Chris Fetrow

Coldwell Banker Apex - McKinney, TX

A Trusted Name In Real Estate

Thanks for the post Jeff! I like the charts you put in here as a way to put this in easier perspective for some potential buyers that continue to listen to the national "news". Some of them are going to get hit with a double whammy down the road because they feel they are still going to benefit by waiting. Our market has not been the same as some of the extreme price swing markets (which get all of the media attention) and some neighborhoods and price points around here have been increasing in SOLD prices for a few months. Overall they are still down, but some have been increasing so those waiting for the "best deal" are now faced with a Higher priced home and Higher interest.

"If you are waiting for the bottom of the market, the only way to know it is the bottom is when prices have already been steadily increasing, so you already missed the bottom my friend". Don't remember where that came from but though it was worth stating again.

Apr 09, 2010 02:16 AM

Tim Maitski

Atlanta Communities Real Estate Brokerage - Atlanta, GA

Truth, Excellence and a Good Deal

Jeff, I think your example #2 makes a case for buyers waiting for prices to drop. After ten years, would you want to owe $205,000 on your house or $187,885? So in the long run it's better to wait, and in the short term it's better to wait because you will avoid the risk of being upside down.

So I think you proved the opposite of what you were trying to prove.

You'd only lose if interest rates went up and prices went up also.

Apr 09, 2010 02:31 AM

Karen Fiddler, Broker/Owner

Karen Parsons-Fiddler, Broker 949-510-2395 - Mission Viejo, CA

Orange County & Lake Arrowhead, CA (949)510-2395

yep....I'm very concerned about our market when the tax breaks expire and interest rates go up. I have a couple of listings that are right on the cusp of problems.

Apr 09, 2010 02:40 AM

Gene Riemenschneider

Home Point Real Estate - Brentwood, CA

Turning Houses into Homes

I think it will be a long time before interest rates get this low again. We are heading up soon.

Apr 09, 2010 02:58 AM

Jeff Belonger

Social Media - Infinity Home Mortgage Company, Inc - Cherry Hill, NJ

The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans

JEFF.... . Overall, I just think that borrowers should be aware of the pros and cons. I hate to throw loan officers under the bus, but I would bet many that were pre-qualifed 2 weeks ago have no been told that rates have increased. I hear it when our loan officers talk to borrowers in the last few days and the borrowers tell them this great rate that they got... yea, 2 weeks ago. Some just play the waiting game, including loan officers, when telling their clients. thanks

CHRIS.... . thanks for the compliment. I think charts, graphs, and tables make it much easier to understand. Especially when it comes to mortgages and numbers. And that is so true, that you don't know when bottom hits until prices start to go back up. thanks

TIM.... . I always love your comments, especially when you debate things... and or read into the post. But part of what I wrote here was about common sense. Why take that chance and wait. Sure, you make a good point that my example shows that you could be better off, if you got the lower price... but.. only if rates went up a whole percent. What happens if rates went up 1 1/2 percent? Or even 2 percent? And don't think it could happen in the next 12 months? It could happen sooner and should have started last year. But the gov't stepped in and started buying these mortgage backed securities, which kept rates low. After I wrote this post, we got a reprice on interest rates for the worse. So overall, I will disagree with those that will gamble and or take that risk of waiting. My examples above where to give an idea what could happen. If rates went to 6.5%, in my 2nd example, your mortgage payment would be about $80 more a month on the lower priced home... and the difference in equity position would be even less. Reality? We don't have crystal balls, but I would put this out there... that we could see 6.5% by the end of this year. Again, I do appreicate your food for thought and your input.... but this all goes back to the title of my post. thanks for the comment.

KAREN... . sorry to sound negative, but the tax credit stuff was just a good smoke screen. How many would have bought if the tax credit was never around? I would bet to say at least 93% or more... so, with that said, how much money did this actually cost us? hhhhmmm In any case, people will always buy. For now, in my opinion, it comes down to job security and a few other issues. thanks

Apr 09, 2010 03:02 AM

Bob Willis

Berkshire Hathaway HomeServices California Properties - Orange, CA

Orange County & L.A. County Real Estate Agent

Great post. I will reblog. I am also concerned about rising interest rates - particularly for a couple of my buyers who may have to reduce their expectations.

Apr 09, 2010 03:06 AM

Joetta Fort

The DiGiorgio Group - Arvada, CO

Independent Broker, Homes Denver to Boulder

Excellent. So many just consider what their payment is. But the really nice part of lower rates is faster pay-down, so I love that you included that detail.

Apr 09, 2010 03:39 AM

Jirius Isaac

Isaac Real Estate &TriStar Mortgage - Kenmore, WA

Real Estate & loans in Kenmore, WA

Good job showing the numbers on why not to wait. I talk with buyers all the time about this. It is amazing how often they do not get it.

Apr 09, 2010 04:18 AM

Gene perez

Greater Mortgage Solutions & Valley Hills Realty - Santa Maria, CA

That was great post ,, so many have gotten spoild and unrealistic with rates and what they expect ,, I had someone in the other day tell me the govt should extend the first time home buyer because they owe us ,,, I am glad the govt pulled out last week on buying the MBS and the sooner we can get the govt out of manipulating and supporting the market the sooner we can get back in to a more normal business climate ,,

not too mention so many LO's really low ball the rates and real estate agents get upset if you dont qoute some low ball rate I always qoute higher and approve higher to have that cushion just in case and yes I do give them the best rate at the time of locking. But rates will really become more volatile as the year goes on and then I am curious about how the GFE is going to come into play??

Apr 09, 2010 05:19 AM

Dagny Eason

Dagny's Real Estate - Wilton, CT

Fairfield County CT, CDPE Homes For Sale and Condo

I am reblogging this. I keep saying it, but not as well as you write it....

Thanks!

Apr 09, 2010 05:49 AM

Tim Maitski

Atlanta Communities Real Estate Brokerage - Atlanta, GA

Truth, Excellence and a Good Deal

Jeff, If interest rates went up more, let's say to 7%, then I would think that prices of homes would then drop accordingly, maybe down to $200,000. Then it would be an even bigger savings to wait.

Either way, whether you buy now or wait, there is risk. I wouldn't say you are crazy by choosing either path.

Apr 09, 2010 08:41 AM

Steve, Joel & Steve A. Chain

Chain Real Estate Investments & Mortgage, Steve & Joel Chain - Cottonwood, CA

Jeff,

Your straight forward numbers provide great evidence of the impact of increasing interest rates. This information, of course, has the most value for entry level, first time home buyers.

Steve

Apr 09, 2010 04:23 PM

Jeff Belonger

Social Media - Infinity Home Mortgage Company, Inc - Cherry Hill, NJ

The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans

GENE.... . even though that can be hard to tell at times, I would have to agree with that statement. But what can spoil any statement such as that is if the gov't steps in and buys the Mortgage Backed Securities again. At the beginning of 2009, I had predicted rates to get to 7% by September. They started to head up in the summer until the gov't stepped in. Otherwise, I think I might have been on. thanks

BOB.... . it's up to us professionals to curb those expectations. And thanks for the polite compliment and for re-blogging this. thanks

JOETTA.... . I actually think at first so many consider the rate. The size of the loan amount has a lot to do with how low or high the payment could increase when rates change. Overall, I love to show details such as this. In any case, thanks for the compliment.

JIRIUS.... . I guess many don't get it until they see the numbers. I have always been a numbers guy and when you actually show the numbers, it can open people's eyes up some. thanks

GENE aka Greater Mortgage .... . I agree 110%, that I am glad the tax credit will end and that the gov't has pulled out of buying the MBS's. I have always said that the gov't has artificially stimulated this economy over the last 2 years... costing us billions of dollars and not doing much to the economy. We could have fixed this with cheaper methods and would have done the same or even better in the results. I wrote about it here. Call to Action - We must fix the real estate market ourselves.

On another note, I agree in regards to some loan officers that still low ball rates and when they go up, they don't notify the borrower until the borrower picks them to do an application... or until after the fact. I have seen this happen already. And the new GFE? A joke... just think, I can date stamp it with a time stamp to show how long that rate is good for. How does this protect the borrower? Please don't get me started on the New GFE. I wrote about it here.. the New GFE - Changes for the worst And thanks for that polite compliment.

DAGNY... . well, thank you very much for those kind words and for reblogging this.

TIM.... . again, I think you make an excellent point... but because of what we know and because of the unknowns... I think it would be a huge risk to tell people to wait. And not all the times that rates went up did prices drop some. That kind of thinking could easily backfire. Hence why I say buy now if you are a serious buyer and have plans.

STEVE & JOEL.... . I love doing posts like these when showing numbers. There will always be people that will argue the point, such as Tim did... and he makes some good arguments. But when there are unknowns in the future, and rates are still very low now with home prices that have dropped, this is the best time to buy now. Why take that risk. Overall, thanks for the kind comment.

Apr 10, 2010 01:29 AM

Chris Olsen

Olsen Ziegler Realty - Cleveland, OH

Broker Owner Cleveland Ohio Real Estate

Hi Jeff -- My understanding is that a general rule is:

Any 10% drop in value of a home is completely offset by a 1% rise in the interest rate.

If that premise is true, and it is according to my math, the interest rate potential rise of say 1% is a much, much, much larger risk in a real estate transaction and perhaps more likely in a broader sense than a 10% drop in values.

Apr 11, 2010 09:59 AM

Lori Martinez Equal Housing Lender

PEOPLES MORTGAGE CO. AZBK 0904164 NMLS 6274 - Prescott, AZ

Personal Mortgage Professional

Great info and interesting feedback on the numbers. I really like Chris's general rule. Thanks guys!

Apr 13, 2010 11:07 AM