While You Were Shopping

By
Mortgage and Lending with Mortgages in AZ, CA, CO, DE, FL, GA, MD, MT, NC, NJ, NV, OK, OR, PA, SC, TN, TX, UT, VA, WV NMLS #138061 MMCD #1141

While You Were Shopping

 

We've known, and have shared, for quite some time now that mortgage rates would be heading up.  What we didn't know, was that they were going to go up all in one week.  Happy 2022!  While rate is an important factor when getting a mortgage, it's important to note that rate is only one piece of the puzzle, and it's actually a lot less important than many people think.  Markets change, circumstances change, and there's daily volatility to consider.  All of these things have an impact on getting the best mortgage for you, and the best mortgage isn't always the one with the lowest rate.  To make matters worse for the rate-obsessed - chasing the best rate could cost you, and cost you a lot.

 

To kick off the new year, we've seen the biggest jump in rates in a single week in recent memory, leaving rates at their highest point in over 2 years.  While this will cause sticker shock to mortgage shoppers that have been in the market recently, it's important to note that rates are still at incredibly low levels historically, and we're still well below market rates we saw spike as recently as 2018.  That said, things happen fast, and markets almost always get worse for consumers faster than they improve, which is what we've seen to start the new year.  The chart below shows mortgage bonds, which are the bonds traded that have a direct impact on mortgage rates.  You can see they've gone lower throughout 2021 (when bonds go lower, rates go up), but from October to December, they traded in a fairly narrow range.  This week though?  They fell off a cliff!  Rates have jumped more than .5% in just a week's time.

Zooming into a chart like this, you'll see huge drops this week day after day.  What that means is for folks who talked with a lender on New Years Eve, but held off "until next week" to get things started lost "the best rate" at every lender.  If they waited to see if pricing recovered, they lost that pricing too.  And the decline continues.  That means if someone talked with a lender Monday, and wanted to take a day to shop, the next day, Monday's pricing was gone - and not just at one lender, ALL lenders.  

 

Who Does This Impact

This impacts mostly buyers or people needing to access their home equity soon.  You can see on this chart how much impact each .125 increase in rate eats into buying power.  Remember, rates have gone up more than .5 in just a week, so based on the numbers in the example below, a buyer who was preapproved to a maximum loan amount of $350k on Monday is capped at $329k today -a loss of $20,000 in buying power.  What makes it an even tougher pill to swallow is that home prices continue to climb - so in a market where prices are rising and buying power is diminishing, the gap can widen quickly, and for some unfortunate people hoping to qualify for their maximum possible loan limit, they can be priced out altogether - in less than a week's time.

 

Things Change

I've never focused much on rate.  If someone can afford their mortgage payment, have a comfortable level of disposable income, and put some savings away, in my opinion, their rate is good for them!  That doesn't mean anyone should pay more interest to the bank than they should, it just means there's no point in obsessing over rate.  Just as the market has quickly pushed rates up, there are economic indicators showing we likely have a recession on the way.  In most recessions (and when inflation gets under control) we see rates drop - that means those locking in higher rates today will still likely be able to get lower rates in the future.  What is ALSO means is that taking an even higher rate today may make sense.  Why?  Because with higher rates, lenders can offer credit to closing costs (ever hear of "no closing cost" loans?).  Having closing costs paid for today, and holding off on refinancing until rates dip can leave you with a slightly higher monthly payment, but can save you thousands of dollars in fees when the time comes to refinance in the future.   This type of strategy is why it's so important to work with an expert mortgage advisor, and also why focusing on rate isn't really prudent.

 

But What About All That Interest Over 30 Years??

I've been helping people get mortgage loans for over 15 years now, and not a single one of my clients (there are hundreds, maybe thousands of them at this point) have the same mortgage they started with more than just a couple years ago.  This is why focusing on things like "the total amount of interest paid over 30 years" isn't very practical.  People don't keep their mortgages for 30 years.  They rarely hold them longer than 5 years.   Bigger homes, divorce, the births of children and increased family size, changing neighborhoods, retirement - life circumstances often result in the need for a new home, and we haven't even touched on those needing to access cash in the equity they have in their home.  There are numerous reasons people refinance, or sell and buy homes, and in each of these situations, the mortgage goes away to be replaced by a new one - so the rate you see today will not matter in 30 years.  And likely, it won't even matter in 3 years.

 

The Right Strategy Saves More Than The Lowest Rate

Rate is important.  It impacts payment, and over the years, even small changes in rate can add up to big dollar amounts.  But it's important to remember how different lenders arrive at the rates they offer - the highest rate companies are often paying their employees very well (sometimes, admittedly, too well, at the consumers expense!).  But on the other end of the spectrum, the lowest rate companies are often hiring inexperienced people with no real world financial knowledge to help customers make the best choices.  Working with the wrong lender can cost far more money than an extra .125-.25 in rate.  A recent, real-life example was when we helped a friend get a home equity line of credit on his home.  He was solicited by his loan servicer, and was getting ready to move forward with a full on cash out refinance, with over $20,000 in lender fees!  Instead, we funded a line of credit for him with next to no closing costs and a payment cheaper than what the other loan would have offered.  Working with the wrong strategy (the lender that solicited him had great rates, but poorly trained and inexperienced staff) would have cost my friend dearly.

 

Remember - while you're shopping the market's changing, and while you try to find "the bottom", the bottom could be falling out from under the market, as we've seen this week.  Rate matters, but working with a professional you can trust to guide you matters far more.  While you're shopping for the best rate, the best rates could be disappearing, and if you wait too long, you could miss a tremendous opportunity!

Comments (14)

Ron and Alexandra Seigel
Napa Consultants - Carpinteria, CA
Luxury Real Estate Branding, Marketing & Strategy

John,

Good afternoon,

I loved this sentence because cheap is always more expensive,, The Right Strategy Saves More Than The Lowest Rate.  

Have a great weekend.  A

Jan 07, 2022 01:54 PM
John Meussner

Thanks A!  It's often amazing how expensive the cheapest things can be!

Jan 07, 2022 02:04 PM
Andrea Bedard
Thompson Company, REALTORS® 240.593.2860 - Silver Spring, MD
Fluent in Real Estate & German, M.A. ABR ASP CIPS

As always I am so impressed by your post John Meussner! So much valuable information in plain language. There are many important points in your post, high rank the importance of working with an experienced lender such as yourself, and to not panic!

I'll be sharing. I have a couple clients who've been "waiting to see what happens". I want them to buy when the time is right for them, but they do need to know how much waiting (too long) could cost them. 

Jan 07, 2022 03:24 PM
John Meussner

Thank you Andrea Bedard , I really appreciate that.  I have a 'cost of waiting' tool that's very helpful with clients in that position - it clearly shows them the cost of waiting.  This year, it'll be high!

Jan 07, 2022 04:41 PM
Anna Banana Kruchten CRS, Phoenix Broker
HomeSmart Real Estate BR030809000 - Phoenix, AZ
602-380-4886

Excellent post John.  Very informative and timely information for home buyers in this ever increasing market, along with rates going up.

Jan 07, 2022 03:39 PM
Anna Banana Kruchten CRS, Phoenix Broker

Totally agree John

Jan 07, 2022 08:47 PM
John Meussner

Thanks Anna!  If people get caught focusing on the wrong things, it'll be costly.

Jan 07, 2022 04:41 PM
Kat Palmiotti
406-270-3667, kat@thehousekat.com, Broker, eXp Realty - Kalispell, MT
Helping your Montana dreams take root

Excellent post - there is so much that goes into the "which loan is best for me?" equation - it's not just the interest rates (but those are important)...

The chart that shows how much less you can buy as interest rates go up is an eye opener!

Jan 08, 2022 04:56 AM
John Meussner

Thanks Kat - and it happens so fast, you can lose buying power almost overnight as we've seen the last couple weeks

Jan 10, 2022 08:52 AM
Carla Freund
Keller Williams Preferred Realty - Raleigh, NC
Carolina Life RealEstate & Relocation 919-602-8489

Thanks John, With rising interest rates it will be interesting. It is going to cap some people out. Our market is still hot and locals are competing against out of state buyers with higher salaries and assets. It may also affect how much our sellers get. They have all heard about the crazy offers from 2021. They may not be as crazy in 2022.

Jan 08, 2022 05:11 AM
John Meussner

Hi Carla Freund , that's my expectation for the year, still a competitive market, we'll still see appreciation, but both will be tempered some from the wild year we had in 2021!

Jan 10, 2022 08:53 AM
Michael Jacobs
Pasadena, CA
Los Angeles Pasadena 818.516.4393

Hello John - sometimes small adjustments (or shifts) may have a big impact.  It definitely varies for people which underscores the importance of speaking with (and aligning) with the most appropriate lending professional should that be the need. 

Jan 08, 2022 05:49 AM
John Meussner

Very true!    Having the right strategy can save people thousands, and you only get that with an experienced pro

Jan 10, 2022 08:54 AM
Debb Janes EcoBroker and Bernie Stea JD
ViewHomes of Clark County - Nature As Neighbors - Camas, WA
REALTORS® in Clark County, WA

That 20K loss is pretty sobering. I too really appreciate your posts, John. As you mention, rates are still pretty terrific. It is time to make a move! 

Jan 08, 2022 07:07 AM
John Meussner

Thanks Debb Janes EcoBroker and Bernie Stea JD , this is the type of stuff we review with customers to educate them - hopefully it helps some people be in the best position when they decide to buy.

Jan 10, 2022 08:55 AM
Dorie Dillard Austin TX
Coldwell Banker Realty ~ 512.750.6899 - Austin, TX
NW Austin ~ Canyon Creek and Spicewood/Balcones

Good morning John Meussner ,

As usual you have a post that is spells out what is happening in easy to understand words. I like Debb Janes EcoBroker and Bernie Stea JD caught the significance of the $20K loss! Rates are still low but does affect the buying power of many buyers.

Jan 08, 2022 08:30 AM
John Meussner

Hi Dorie - it certainly does!  For most people it will just unfortunately make things more expensive, but for some it could price them out of their market altogether as prices continues to climb

Jan 10, 2022 08:56 AM
Nina Hollander, Broker
Coldwell Banker Realty - Charlotte, NC
Your Greater Charlotte Realtor

Terrific post, John. When people start worrying about interest over 30 years I often ask if they really plan to be in their home for 30 years. Usually not! I'm old enough to remember the rates of the 1970's... today's rates seem low to me. Of course, for those who never knew rates above 5%, it's a whole other story.

Jan 08, 2022 08:50 AM
John Meussner

Great point, Nina Hollander, Broker we've been spoiled by a very low rate market (of course, in the 70s, I think the median home price was a bit lower, too!).   With rates heading toward the 4's, the important thing is that rates are still phenomenal

Jan 10, 2022 08:57 AM
John Juarez
The Medford Real Estate Team - Fremont, CA
ePRO, SRES, GRI, PMN

Really great information, John Meussner. It is not all about rate. It is all about whether the payment is affordable and the new loan fees, if any, are reasonable. It is also very important to work with an experienced professional who will follow up with you to suggest opportunities for a refinance when it might make sense or stand ready to help with the next home purchase.

Jan 08, 2022 09:49 AM
John Meussner

Thanks John Juarez and I 100% agree.  We're already advising people that we'll likely be reaching out in a year or so with refi opportunities.  I see another mini refi-boom on the horizon should we see a recession hit.

Jan 10, 2022 08:58 AM
Lynn B. Friedman CRS Atlanta, GA 404-939-2727
Atlanta Homes ODAT Realty - Love our Great City - Love our Clients! Buckhead - Midtown - Westside - Atlanta, GA
Concierge Service for Our Atlanta Sellers & Buyers

John Meussner 
Good point to remember! Take care - Lynn
"not a single one of my clients ... have the same mortgage they started with more than just a couple years ago." 

Jan 09, 2022 08:38 AM
John Meussner

Thanks Lynn B. Friedman CRS Atlanta, GA 404-939-2727 - good lenders will let their customers know when an opportunity arises, there's been much opportunity the past few years so everyone's mortgage still has that new car smell : )

Jan 10, 2022 08:59 AM
Jeff Dowler, CRS
eXp Realty of California, Inc. - Carlsbad, CA
The Southern California Relocation Dude

Hey John:

Some great insights and analysis in your post. Things are usually not quite as simple as borrowers might hope, i.e, focusing on rate only. Your post is a clear example of why it's essential to work with a knowledgeable lender like yourself, who can and will counsel buyers on what's best for their personal financial situation, and share the pros and cons of the programs that are available...and not just make the sale.

Jeff

Jan 11, 2022 08:22 PM
John Meussner

Thanks Jeff!  Appreciate it!

Jan 12, 2022 05:27 PM
Elyse Berman, PA
Best Connections Realty, Inc. - Boca Raton, FL
Boca Raton FL (561) 716-7824 CRS, ABR, GRI,ePR

Hi John,

 

Great information.  Some people who are looking for mortgages do not understand what happens when rates go up.  Thank you for explaining it.

Jan 12, 2022 07:14 AM
John Meussner

Thanks Elyse, appreciate it :)

Jan 12, 2022 05:22 PM
Dr. Paula McDonald
Beam & Branch Realty - Granbury, TX
Granbury, TX 936-203-0279

Always great information for us John. Thank you for this detailed post on an important topic.

Jan 12, 2022 03:54 PM
John Meussner

Thank you Paula, I appreciate it!

Jan 12, 2022 05:30 PM