You Pay for What You Get

Higher mortgage rates shouldn’t be a suprise. Besides having SUPER LOW RATES for over 10 years, there were factors that led to our shocking interest adjustment this past fall. Last year when we were hit by the news of the great resignation due to the free money we got from the government, many people had a bad feeling about what would come as a result. That, plus all the shortages and subsequent price hikes made it absolutely necessary for the Federal Reserve to slam on the brakes.

Rates are higher…. Get used to it!

but wait…. Rates AREN’T High?

As a matter of fact, rates are still below average.

• average 30 year fixed mortgage rate is 7.75%.
• Rates have averaged above 10% for 574 weeks
• Rates have averaged above 7% for 1,316 weeks
• Rates have averaged below 7% for 1,175 weeks

So it’s been a while since we’ve had high rates, but only because of the great recession and the pandemic.

OK… fine…. Where do we go from here?

Buyer’s have always had options for lower rates. The 30 year fixed rate is especially good for people who plan keeping the same mortgage for 30 years, but who does that? Average homeownership (same home) is around 8% on average, and people keep the same mortgage for around 4-5 years. That being the case, the majority of people would benefit from the adjustable rate mortgage. As of this post, rates for a 30 year fixed mortgage are around 6.375%, and rates for a 5/6 adjustable rate mortgage are closer to 5.375%. Even after the initial term, all reputable banks have limits on how much a rate can change in a year, and if rates have dropped, the adjustable rate drops too.

Don’t Forget!

Keep in mind, when it comes to numbers, sometimes interest rates can be decieving. While the monthly payment is based upon the interest rate, the actual cost of the loan is reflected by the APR (annual percentage rate) which adds the origination fees divided by the number of payments for the life of the loan. The APR and the rate are always pretty close together, so most buyers don’t sweat it, but if the origination fees are divided by the ACTUAL length of the loan (4-5 years on average), the APR is significantly higher when the origination fees are greater.

It pays to pay attention and compare ALL the numbers

when considering loans!

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