Interest Rates - Is It Worth Waiting?

What would a year in real estate be without a great theme?

2020 - Like everything else. The COVID year.

2021 - Supply chain and with it, cost of building materials

2022 - Inflation (and home prices with it)

And then we come to 2023.... INTEREST RATES!

Okay, maybe interest rates were part of 2022 as well, maybe even a LOT of 2022. But the big question now is what's next? 

Long story short... no one knows. However, the prevailing theme seems to be that high(er) interest rates are here to stay for a while. After all, we had never seen mortgage rates below 6% until roughly 2008. Then we were spoiled for the next 14 years with rates mostly in the 4's and even dipping down into the 2's for many people. I could write a big long article with a bunch of boring numbers that would still land on a complete guess as to where interest rates will be a year from now. OR.. and stay with me here... we could figure out how we can go on with our lives!

Point 1... how much does it matter?

The quote I keep hearing thrown around is "Marry the house, date the rate". Here's what it means. If you buy a house now, at say a 6.5% rate, assuming that you can in fact afford that payment, what are the possibilities moving forward?

Rates go up - Good for you! You got in at the right time.

Rates go down - refinance! Generally if you can save a percentage point on your rate it's worth a refi.

What this doesn't help with is CURRENT AFFORDABILITY. Doesn't matter what interest rates do in the future if you can't afford the payment for the house you want right now at current interest rates. Here are some ideas to help.

Buyers aren't the only ones feeling the pain from high interest rates. Sales have slowed down a ton as well. Most people who are selling right now are particularly motivated, otherwise why would they be selling their house with an interest rate likely in the 3's or 4's to move into one in the 6's or 7's? This is helping things in a couple ways. Firstly, prices are coming down, if only slightly. Secondly, sellers are offering incentives to buyers to help them be able to afford their home!

Buy-Downs

On a conventional mortgage, sellers can legally give the buyers up to 6% of the purchase price of a home in seller paid closing costs. This can cover an interest rate buy-down! Don't know what that is? It is just an upfront amount paid to the lender from the buyer to bring the interest rate down on their loan (and thus, bringing down the monthly payment). Here's a scenario to show just how much this could help. 

Scenario

Disclaimer: Numbers listed below are for one very specific case on one day. Market conditions change, rates change, costs of buy downs change. This case is simply to show you the potential power of a rate buy-down. 

Home price - $469,000, 20% downpayment, 720 credit score, 6.5% rate. Principle and interest payment: $2,371.52

Permanent Buy-down - This means that the interest rate is lower through the life of the loan.

Cost: $9,823.

New Rate (after buy-down): 5.375%

New Payment: $2,101.01 (Savings of $270.51 per month)

Savings: $21,125.79 through 5 years.

For just shy of $10,000. Which, in many cases, the seller may be willing to pay to help sell the house, you could get your interest rate into a much more reasonable place!

Credit to Kyle Craig with Clear to Close Mortgage for the rate scenario. If you want to find out how this could help YOU and what your numbers would look like, get in touch with him! Email: kyle@teamctc.com Phone/Text: (502)762-4384 and tell him I sent you!

So there you go. Don't let interest rates get you down in 2023. The show must go on!