While You Were Shopping

Reblogger
Real Estate Agent with Thompson Company, REALTORS® 240.593.2860 MD594797

If you are wondering if now is a good time to buy your first, or next, or last home, or if a refinance is on your mind, then this is an important read courtesy of John Meussner, Mortgage Made Easy!

John makes many important points, on top of that list are:

1. the importance of working with an experienced lender

2. "the right strategy saves more money than the lowest interest rate"

3. no need to hit the panic button

If you are on the fence about timing, take a look at John's chart showing you how much your buying power decreases as interest rates increase. At this point, there's no indication that prices will go anywhere but up. They may not jump by double digits as was the case last year, but even a 2% increase is an increase. 

If you are ready to get serious, give John a call to discuss your mortgage options. He's licensed to do business in many states, including Maryland. 

$$$$$$$$$

Original content by John Meussner 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!

John Meussner

NMLS# 138061

Visit My Website!

 

Posted by

Andrea Bedard
Thompson Co., REALTORS®

Silver Spring, Maryland
andreabedard.com

Fluent in Real Estate and German.
Old house lover.
Accredited Buyer's Agent.
Certified International
Property Specialist.
REALTOR® on the Run.

Let's write your unique
Real Estate Story.
Happy Ending Guaranteed.

My Blog
About Me
Email Me

Call or text
(240) 593-2860

   

 

Comments (6)

Endre Barath, Jr.
Berkshire Hathaway HomeServices - Beverly Hills, CA
Realtor - Los Angeles Home Sales 310.486.1002

Andrea, all I can say is my parents were paying 14 or more per cent and it was under the Carter Administration.... they and I learned something... pay off the mortgage quicker and then it is not a problem... Diane and I have been doing that and hope we will not have to deal with this...Endre

Jan 07, 2022 10:52 PM
Andrea Bedard
Thompson Company, REALTORS® 240.593.2860 - Silver Spring, MD
Fluent in Real Estate & German, M.A. ABR ASP CIPS

I'm working on paying mine off early Endre Barath, Jr., always paying a little extra each month. Historically, a 3.5 or 4% interest rate is still low. But for any potential buyers this half or full point increase will lower affordability. In a high price market with low inventory it can make things much more difficult.  

If anyone was looking for a sign whether to start the home buying process now or wait till later this year, or even next, John's input may be helpful! 

Jan 08, 2022 08:42 AM
Rocky Dickerson
Realty One Group - Las Vegas, NV
Superior Service!

Great choice for a re post Andrea Bedard great and wise counsel for buyers

Jan 08, 2022 02:20 PM
Elyse Berman, PA
Best Connections Realty, Inc. - Boca Raton, FL
Boca Raton FL (561) 716-7824 CRS, ABR, GRI,ePR

What a great reblog Andrea Bedard .  John Meussner always does a great job with mortgages.  Happy New Year!

Jan 12, 2022 06:47 AM
Andrea Bedard

He does Elyse Berman, PA, and I always find his blog posts super informative.  

Jan 14, 2022 03:59 PM
Laura Cerrano
Feng Shui Manhattan Long Island - Locust Valley, NY
Certified Feng Shui Expert, Speaker & Researcher

Really efficient money management is so satisfying

Jan 14, 2022 02:13 PM
Andrea Bedard

It is Laura Cerrano. I'm big on budgeting, and accounting for every dollar. Seeing my investments pay off and making smart long-term decisions is satisfying, too! 

Jan 14, 2022 04:00 PM
Laura Cerrano
Feng Shui Manhattan Long Island - Locust Valley, NY
Certified Feng Shui Expert, Speaker & Researcher

If I can just add that decluttering outfit that I fine. If you can clean up your physical space, a queens up a lot of mental space to  do things like personal finance. ;

Jan 14, 2022 02:33 PM