Leaves turning color…Days getting shorter…Misty mornings……And a chill in the air are all signs Autumn is headed into the Ozarks.It’s time to start prepping your
Rates Have Risen, What Are My Options?
Dated: July 19 2022
Rates Have Risen, What Are My Options?
Mortgage rates have been all the talk over the past few months as rates have moved above 5% for the first time in over a decade (30-year fixed rate mortgage). While today’s mortgage rates are higher than we’ve gotten used to, they’re significantly lower than the thirty-year rolling average of 7.77%. Next time you’re in a room full of people (mixed ages), ask what rates they remember getting for their first home purchase—I promise you’ll be surprised. I did this recently and heard mortgage rates as high as 17%! I was afraid to ask about the payment. 😳 My first mortgage was a 7.5% ARM loan (more on ARM loans in a minute). All that to say, yes, rates are up from the bottom-of-the-barrel norms we’ve gotten used to, but it’s worth keeping in mind that they are still historically very low.
Nonetheless, if you’ve gotten used to a payment with a 3% interest rate, the decision to upsize or downsize is not only about the home’s value, but also what interest rate you’ll be paying to finance your new home. Fortunately, fixed-rate home loans are not your only option. Rates have been so low over the past ten years that we’ve all but forgotten what ARM loans, assumable loans, and builder buy-downs are. But today, these options may be exactly what you need to get your payment into the sweet spot of your budget.
As inventory starts to rise in the home market (yay!), here are a few options to consider before making an offer.
ARM stands for adjustable rate mortgage. It means that your loan rate can adjust up or down with the market over time. The most attractive feature of an ARM loan is that they typically have an introductory period (3, 5, or 7 years), where the rate is often less than a 30-year fixed-rate loan. This could be a great option to consider until rates will go back down, or if you won’t be staying in the home past the introductory period.
An assumable loan provides a buyer an opportunity to purchase a home from a seller by taking over their existing mortgage loan. If the seller has a 30-year fixed-rate loan at 3%, and the loan is assumable (not all are), then this could be a very attractive option to consider. While this option may be a great way to get a lower rate, because assumable loans can have strings attached, all parties need to do their due diligence to make sure they understand the terms of the loan provided by the lender.
Government Insured Loans
The U.S. Government backs three lending agencies to help more American’s become homeowners: the Federal Housing Administration (FHA loans), the U.S. Department of Agriculture (USDA loans), and the U.S. Department of Veteran Affairs (VA loans). Each of these loan programs has different criteria that need to be met in order to qualify, and they have fees that you won’t find with conventional loans, but because the rates are typically less than a 30-year fixed-rate loan, they may be another great option to consider to keep your rate down.
Special Loan Programs
Many banks have special in-house loan programs that they offer their customers in order to make homeownership more feasible and affordable. For example, Central Bank offers an 80/20 loan program for first-time home-buyers with 80% of the loan being on a 7-1 ARM, and 20% of the loan being on a 5-1 ARM. This means no down payment is required, which, for some people, may be a great way to get into their first home without breaking the bank.
Mortgage Rate Buy Downs
If you know you’re going to stay in your home for a while, a mortgage rate buy-down may be exactly what you’re looking for. A buy-down is a way for a borrower to obtain a lower interest rate by “buying down” the interest rate on their loan. These buy-down fees are typically called discount points or mortgage points, and they are paid upfront at closing. The best part is that the buyer or seller can pay these discount points. Right now, some builders are offering interest rate buy-downs up to $15,000 in order to help buyers purchase one of their homes.
While rates have risen, there are still many great options to help you keep your payment within your budget. Ask your lender which options you have available to you, and if you need a recommendation, we’d be glad to help.
About Murney Associates, Realtors®
No one loves the Ozarks more than Murney Associates. Our real estate agents are here to help you navigate one of the most important decisions you’ll make. We encourage you to look at our market updates which highlight real estate trends in Springfield, MO, and the surrounding area, as well as our rankings in home sales. Thanks to our clients for making Murney Associates, Realtors the number one real estate agency in Southwest Missouri.