The Big Six-Oh can mean different things to different people. For most it’s that they’ve reached the age of 60, with much more of their lives behind them than ahead.
For younger folks these days, particularly those looking to buy homes, the Big Six-Oh probably refers to the latest 6.0 30-year fixed mortgage rate percent making news.
After well over a year of rates being at historic lows, they’re finally climbing as the Federal Reserve has been raising interest rates to combat inflation. When they do, mortgage rates increase with them.
So what are the strategies agents should employ when clients are seeing their potential monthly mortgage payments jump? Here are 10 talking points to soothe clients.
- Prospective buyers should review the history of 30-year mortgage rates for perspective. How about 18% in 1981? Too far back? They were over 6% in 2008 and close to 5% in 2018. So 6% now is more the norm, regardless of whether they are higher than a year ago.
- When mortgage rates are higher, home prices level off because there are some buyers whose finances are so tight that they can’t handle even one percentage point more. So the bidding wars that were so common this past spring and summer are pretty much over. It’s back to homeowners lowering prices again, which was almost always the norm.
- You can refinance if rates go down. Just because you lock into a rate doesn’t mean paying that for however long you own the property. Refinancing makes a lot of sense if you plan to stay put for several years. A rule of thumb says that you’ll benefit from refinancing if the new rate is at least 1% lower than the rate you have.
- There are mortgage alternatives to the 30- or 15-year fixed rates. Adjustable rate mortgages offer flexibility, especially if you’re uncomfortable with the lock-in rates. Of course the long-term rates could rise, so nothing is for sure.
- The Covid-19 pandemic was a major reason mortgage rates dropped the last few years. Lower interest rates helped make that so. But the pandemic was an outlier, so almost everything was skewed. Mortgage rates are still good now. And with the Fed telegraphing that it’s likely to continue raising interest rates now is a good time to lock in, even at 6%.
- You are likely not going to own your new home for 30 years, so the rate is only in effect for how long you’re there. And when you sell, you’re likely to make a profit. The average tenure of people who sold their houses in 2020 was 6.3 years.
- Almost no one ever gets the absolute best mortgage rate and almost no one gets the worst. So don’t let a number stop you from buying a house. Better to buy now and start building equity than to keep renting with no profit.
- Higher mortgage rates mean higher interest rates, so money you may have in financial accounts will rise.
- Experts recommended paying no more than 33% of your monthly income on housing costs like mortgage payments, taxes and insurance. So if you’re still within that range don’t sweat it.
- You can typically lock in your rate for anywhere between 30 and 60 days, although some lenders offer rate locks for up to 90 days. Ask your lender if they have a “float down” option, which would keep your rate from increasing while allowing you to snag a lower one if mortgage rates fall before closing.