Just yesterday this happened and I still don't believe it when it happens and want to make sure our realtor partners are aware of this dilemma. During my consultation with a client, it is a very clear step in the process to explain that mortgage rates can not be locked until a property is identified and we have an address to submit the lock to the lender. A lock is not attached to a client, a lock is attached to a property. So if the client is still in a home buying search, they by no means should be assuming the rates are staying the same or better yet, improving.
Even if the property is identified, there is a "rate lock or commitment form" we fill out and the client either chooses to float or lock. In this market, I always recommend locking as it is much easier to miss a slight improvement in rate then to see a devastating rise like we have seen since June 3rd, but people still resist hoping for better.
My point of this blog and my story from yesterday was in relation to a frustrated client and a realtor in an awkward position. I send out weekly updates by email, I have daily market updates by video on my website I call my clients and leave messages with rapid market changes good or bad and I am convinced some people do not want to hear bad news and when they are faced with it head on, they seemed shocked.
This client is looking to purchase in the $500k range where we will be using the max conforming loan limit of $417,000 in our market. I met with them about 3 weeks ago, nearly four and at the time their mortgage rate on a 30-yr fixed would have been 5.875%. Well they found a house they like yesterday and wanted to make an offer and asked how rates were doing and if their payment would be the same. I said no, actually, rates had taken an ugly turn for the worse like I had been updating them in various means. In their scenario yesterday, their rate, had we locked would have been 6.5%.
So they get upset, comment, "I thought you said rates were in the 5's, we can't afford a higher payment!" So most realtor's would be sitting there, I am sure feeling bad, worried, scared that they will not buy now and wondering what conversation I really had with them and if I truly had prepared them. Fortunately this is a trusted referral partner who knows my systems, daily market updates, weekly forecasts and client experience, so I know she was thinking, the same thing I was thinking.
Not to minimize these clients disappointment because that IS a big difference in payment not just monthly but over time, it's 10-s of thousands of dollars in extra interest. In this scneario alone, the payment difference for them would have been $169 a month and then only after 10 years, $26,000 extra in interest and reduced principal reduction!
So my I have two major points/concerns.
#1, Be proactive and help them in your trusted advisor role and have this discussion and remind them. I have had resistance from agents on this topic and have been told, "I don't want to talk about the mortgage stuff with the client, that's what you do." I hope you understand that it should be our goal to create a team of advisors for the client and do all we can to make it a great experience, so if it involves reminding them that rates are climbing and have they considered what their new payments might be? If they so no, then yes, refer them back to your mortgage professional to have that conversation.
#2 Motivate your clients to take action and not keep waiting for that perfect deal or that house price to drop another $10,000. Because in the scenario above we can see how fast that great deal goes away when they are paying that much more to finance the place. Another thing to consider, with that difference in payment of $169, that is an extra $22,500 in home they could have bought at 6% interest for the same payment at 6.5%.
I hope this was helpful.
Be Blessed!
Travis
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