A topic that's on most people's minds today: mortgage rates. That's understandable. Since fall 2021, we have seen mortgage rates increase significantly. The trend affects homeowners, would-be homeowners and the greater financial and real estate markets.
So, why the seemingly sudden rise in rates? While there are many factors that affect rates, the number one item that moves mortgage rates is the expectation of inflation. The impacts of inflation, coupled with the artificially low rates we've experienced since 2020, has created an upward trend. But are rates as bad as the headlines lead us to believe? No.
Even at our current rate, historically, we are still enjoying a period of relatively low interest on home loans. Freddie Mac has provided a weekly rate survey since 1971 using the same methodology. The average 30-year rates from 1971 to end of 2021 was 7.8%, according to Freddie Mac. Since I started in the mortgage business in 1993, I have rarely seen rates above that 50-year average. Today's rates are keeping with that trend, even with the hikes and inflation expectations. They are still lower than the 50-year average.
The coming weeks and months will have a lot to tell us about how the lending markets will respond to current market conditions. If the expectation is for significant inflation, then rates will likely rise. If the expectation changes to a recession and limited inflation, then we should see rates drop.
No matter what the lending market does in the future, as a consumer, it's important that you understand the context of what's happening and how it impacts your financial decisions when it comes to home ownership. Partnering with an expert mortgage broker that can offer creative solutions for your specific needs can be the difference between a smooth transaction and a disappointment or worse: a financial mistake.
For instance, did you know that in some scenarios you can negotiate with a seller to buy down the interest rate? In simple terms, a buydown allows the borrower to obtain a lower rate by paying an additional fee that can be paid by the seller. This will help lessen the impact of higher monthly payments at today's rate.
Another idea for buyers, if you are confident rates will drop in the next few years, you might consider an adjustable-rate mortgage. This type of loan allows you to refinance later when rates are more agreeable to your goals.
My job as a mortgage broker is to know on any given day which lenders have philosophies that align with my borrowers' situations. Many borrowers think they have an easy case only to find out that not every lender will work with them. Working with a broker as opposed to a banker gives borrowers the ability to have a professional guide and rate shopper in a very complex world.
Bottom line? The ability to "shop around" for a lender that matches your needs comes in handy during dynamic times and can save you quite a bit of money in the long run.
-Mike Martin is the Branch Manager NMLS# 296965 of Motto Mortgage Cascades