Mortgage interest rates are on the rise. Let’s talk about that. Hey guys. My name is Eric Sztanyo from Keller Williams Realty and team Sztanyo.com, where we are helping you find your home and strengthen your family. I’m here joined again by Geoff Bostick from guaranteed rate. And that’s what we need to talk about, guaranteed interest rates, guaranteed rate that don’t go up.
Understanding Mortgage Interest Rates and Buying a house
Eric:
Geoff , can you guarantee me that interest rates are not gonna go up again in 2022.
Geoff:
I would love to guarantee you that interest rates aren’t gonna go up, but that’s just not certain.
Eric:
Okay. So, why don’t we do this to get started here? There’s a lot of headlines in the news about what is happening with interest rates right now, what the federal reserve is doing, how that impacts your credit and rates and housing and all that. Can we back up a little bit? Can you give us a little context about maybe where we’ve been with interest rates and where we’re at right now?
Geoff:
Yeah, so if we take that, we call it the 30,000 foot view, right? You kind of scope back. Interest rates are still crazy low. And if looking right now, rates are averaging four to four and a quarter percent for a 30 year fixed loan, depending on credit and qualifications. But still low fours are right around 4%. And historically that’s amazing. And so when we look back at averages and we look back at the averages of 2000 to 2009 range rates were most of the 6% six to 7% (Eric: That was in my first house) And that was normal. And that was still low for the time If you look back for 20 years prior to that. And then when we go from 2010’s to 2019, rates had a little bit of a range, but they were still average probably between 4% and 5%. And also we’ve seen 4% to 5% within the past three years or so. So this isn’t crazy for as far as what’s going on right now.
Eric:
So what I’m hearing you say is I should never buy a house because they’re not at 2%? 😅
Geoff:
Yeah. You don’t want to not buy a house because rates aren’t 2%.😄 Another phrase I love is the interest rate of rent is a hundred percent, right. So if you’re not buying your house, your are paying somebody else’s mortgage and who knows what their rate is.
Eric:
Okay. So we’re historically low, you know, it’s not like the late 1970s, early eighties, which was bombers.
Geoff: Yeah, they’re not 18%, right.
Eric:
Not 18%. That’s nice. But you know, even growing up a little bit does impact your buying power. And so let’s maybe talk about that and try to quantify a little bit. The rates we are seeing if they do go up a quarter, a half, even a whole point. What could that potentially mean to someone’s buying power who is looking to buy this year?
Geoff:
So over the last three months, we’ve seen rates go from a about 3% on average to about 4%. It made a pretty steep hike in a short period of out. And so we looked at some graphs and this will probably show up here, But, to buy a $300,000 house, and this is actually a $300,000 mortgage, there’s money down. But a $300,000 mortgage at a 3% interest rate had a monthly payment of about 1265 a month. That’s just the principle and interest strip out all the other stuff. Cause that’s not gonna change. If rates move to 4%, which they have at this point, the same mortgage or the same monthly payment, you’d get $265,000. So it’s impacted 35,000 of lending power buying power in that case for the same monthly payment for a one per percent increase. And as rates continue to increase from there, it will just continue to deteriorate a little bit of that buying power.
Eric:
Gotcha. Okay. So it does have an impact. There’s no doubt, especially when it’s a sharp jump like we’ve had recently here. Do we have any idea of what that might look like going forward? I know it’s hard to forecast these things, but like any thoughts on that?
Geoff:
I think we’ve seen it. And so the big, hot trigger button now is the federal reserve is gonna raise interest rates. If we wanna jump into that real quick. So the fed is gonna raise rates next month and they’ve already telegraphed that. And so people think, or I get a lot of questions regarding “Hey, the Fed’s gonna raise rates.” That’s not a direct impact to mortgage rates. That is a direct to overnight banks, how banks borrow money. It’s a direct impact to prime interest rates, which is the most aggressive rates banks will lend to consumers. And that will impact things like your auto loans, your credit card, interest rates, some unsecured grieving equity lines that are tied to things like prime. Now mortgage interest rates are bonds. Those are long term interest rates. And when it comes to those, those are based on what our future moves. And since the Fed’s already given their hand and said, we’re gonna raise rates. It’s one of the reason we’ve see increase. It’s already built in. They’ve expected it.
Eric:
Okay. So there is a correlation, but it’s not direct it’s indirect.
Geoff:
And, when we saw the fed increase rates last, it was 2018 to 2019 as they were trying to unwind some of the stimulus stuff that they had done for the many years prior, every time they increased the overnight rates, the federal reserve rates. Interest rates for mortgages actually dropped in the weeks to come. It wasn’t like they dropped a ton, but they did drop. So there might be a, as some of the action actually unfold. A lot of the move and interest rates is based on what we think is gonna happen, not what actually has already happened. So then as some of the things unfold, they’re like, oh, it’s not that bad.
Eric:
So if I’m listening or I’m watching this right now as a buyer, then what’s your advice. Should I try to time it? What kind of mindset should I have going into getting an interest rate for a loan to buy a house?
Geoff:
Yeah. I would not try to time it and I don’t encourage any of the buyers.
Eric:
Yeah, but you et paid it’s for them to get the look.😄
Geoff:
Fair enough.😅 Well, here’s what we find. Home prices are on the rise right now. And so if we look at it, someone were to buy last year versus this year, they might be seeing a 10% or more increase in sale prices. And just using that 300,000 number, cuz it’s kind of a nice median price point for our market. Someone tried to buy that house last year. Maybe they got it for $300K. They’re trying to buy it this year. It could easily be $330K, $350K. The amount that you’ll pay in interest at least over a few years, especially if we stay on the same clip because inventory’s not just appearing right now. I can only see prices go up. So I wouldn’t time it, rates are still low by the house. If you find the house.
Eric:
I think it’s similar. I’ve got some friends who are big into Bitcoin and cryptocurrency now and you know, there are some friends who are, it’s super volatile, so they’re trying to time everything. I have the mindset, I’m like, I’m gonna buy this and hold it until I die. I think it’s almost a similar mindset in invest, whether it’s Bitcoin or even the market or whatever, is it time for you to buy a house? You know, is it a better fit for your family or your situation right now, as opposed to trying to nail down like “Oh, the rate dropped just a little bit” like, do you need a house? Does your family need a house? Is it time to buy? Is it not time to rent anymore? Are you relocating from somewhere else? I think it might be better to approach of like asking the decisions that are best for you and your family? In terms of when is it time to buy or not versus rent versus trying to like, let me try to peg when the fed is gonna do or when the interest rates are gonna do go up or down.
Geoff:
Yeah, I love that. And as we were talking before, it’s you can’t time when all these things align, you can’t time when you need to move, you can’t time when the relocation or the job promotion or any of these things are gonna happen or when the perfect house for your family comes on the market. So not buying it because of what the rates are doing or potentially doing now, as long as you can afford it, as long as it fits your budget.. buy the house. And rates do move in waves and haven’t done this long enough. I see rates people buy houses when rates are 5%, we refinance them when rates are 3%. And you are not locked in to a mortgage for 30 years, the average or last statistics I’ve seen on the average life of mortgage is about four to five years. And so people will refinance or they’ll buy that next house or they’ll move and they pay that mortgage off. So we’re really not looking at what is the difference in monthly payment, on the percentage increase over 30 years, those are big numbers. We’re looking at what’s the next 5 to 10 years, or what’s your specific game plan.
Eric:
And you’re saying this, even if you’re buying a product that’s a 30 year fixed rate, the average length of time that people are actually holding that loan is four to five years, is what you’re saying. So even if rates do go up, they could come down and you could refinance. And when that time is right.
Geoff:
That’s When you can catch the dip. Right?😄
Eric:
So like we said, a lot of this is in the news right now, you know, it feels like it’s kind of all over the place. And so if you are concerned about that as a buyer, how should a buyer approach that and how do you address that with your clients?
Geoff:
Yeah. And that is bringing up this newer product that’s coming on the market where we can lock you in at pre-approval. And we can lock you in up to 90 days, for you to find and close on a house. So if you’re concerned with what the fed action’s gonna be, or just that rates could continue to increase, cuz the last thing you want to do is think your payments, one thing, and then see it $1,500 more a month. We can lock your interest rate in now for full 90 days. And if you find a house in that timeframe, you will know that your payments at least locked in.
Eric:
Okay. Is there a cost to that to doing?
Geoff:
No additional costs.
Help in Understanding The Current Interest Rates and your Ability to Buy a home
Eric:
Pretty cool. Okay. So Geoff, thanks for joining us. I hope this conversation was helpful for you guys, as you’re thinking about interest rates. If you’re looking to purchase this year. Again, Geoff , how could someone reach out to you? And what’s the best way to contact you?
Geoff:
Yeah. Call or text is great. (513) 633 – 0504. Or onto our website. You can start the online application or shoot us an email that way and that’s rate.com/Geoff Bostick.
Eric:
Guys, I hope this was helpful for you as always. If you’re looking to buy or sell in the Cincinnati or Northern Kentucky market, you can email me at eric.stanyo@kw.com. Thank you guys so much! Be sure to like and subscribe. We’ll see you in the next one.