Mortgage Rates Roller Coaster

If you have been in the market for a new home, you may have noticed mortgage interest rate swings in the last 12 months.  In the early part of the pandemic, interest rates were on a roller coaster; coming off fresh highs from the stock market, rates were relatively stable beforehand.  Rates shot upward, and then downward, and back up within a short period few months.  It was not until we had a greater handle on the trajectory of the pandemic (coupled with monetary policy from the government) that we saw rates steadily decrease through the end of 2020.  Headlines such as “Mortgage rates hit another historic low” were commonplace.

Much has changed since the end of 2020, with all American adults predicted to be eligible for the vaccine by May 1, and more than 40 states stating that they will beat that date.  With the virus on the decline and a “new normal” setting in, mortgage interest rates are generally starting to rise.  For buyers in competitive markets, it can be alarming to see new headlines showing that rates have increased dramatically in the last few weeks.  For first-time homebuyers in particular, this news can be difficult to navigate while understanding what it means for your homebuying potential.  Today’s post reviews three items to consider regarding interest rates, and what you can do to position yourself as a buyer.

• Historically Low: While it is true that interest rates are generally on the rise, from a historic perspective they are still considered very low.  If you ask anyone who bought a home in the 1980’s, they will likely tell you how high their interest rate was.  According to Yahoo Finance, mortgage interest rates exceeded 18% APR, which also explains the historic reason why rates were so high.  By comparison to generations past, today’s current rates are generally dramatically lower.  To understand how these higher rates affect a monthly payment, Google has a simple mortgage calculator that you can use to demonstrate the difference.
• Rate Change: Often when a buyer comes to me for a preapproval, I quote them with an interest rate and do my best to let them know it is subject to change prior to lock. To understand how a rate lock works, follow this article from the Consumer Financial Protection Bureau.  Most lenders won’t lock your rate until you are under contract with a home, including Stockton Mortgage.  It is important to keep in contact with your Mortgage Banker on current rates to ensure you are up to date on how rates have changed since your initial preapproval.  Rates can fluctuate daily and even hourly, so it is important to have a pulse on how a rate offered to you can change prior to lock.  Note: for refinance transactions, the lock can be done at the time of application.
• More Than a Number: While the interest rate is very important to a mortgage, I have found that it can often carry a higher weight in a buyer’s mind than may be valid. Everyone has a different situation, but for well-qualified buyers a small difference in an interest rate may not make a large difference as they think it will – both in monthly payment and interest paid.  Other factors, such as closing costs and down payment, can often play a similarly sized role in the transaction, yet is often overlooked as an impact.  In addition, most buyers aren’t aware that you can buy down an interest rate even as rates rise – so if a lower interest rate is critical, it may still be an option to get a lower rate by adding to the closing costs.  This isn’t an option for everyone, and this article from Zillow explains what buying down the rate (discount points) can do for the loan.  Ask your Mortgage Banker if you have questions on how this process works.

In most real estate markets across the country, it is a very competitive market for buyers.  According to CNN, February had a record 30% drop year-over-year in housing inventory, making it difficult for many buyers to find a home.  As a buyer, the better you can position yourself before making an offer will not only make your offer more competitive, but will also give you confidence in your offer.  Stockton Mortgage is here to help you in your journey.

Authored by Nick Edgerly, Mortgage Banker  NMLS#: 1912730

Nick, a native of southern California, has called Lexington home since 2014. Him and his family have come to love their community; Nick says, “I agree with the popular, local t-shirt that says, ‘Heaven Must Be a Kentucky Type of Place’.”