Now that we’re in the summer buying season I want to help you get an idea of where the opportunities are in the marketplace right now.
Let’s take a look at where interest rates are today and where they are headed. We’ve got a great value on a 30 year fixed at 4.875, the APR on that is 5.07. That’s 20% down on a conventional loan or 20% equity. Now of course rates may vary depending on your scenario and the loan product, but that 4.875 with an APR 5.07 is a really great value point right now on a conventional loan.
Take a look at this chart to see where rates are going- this is the Freddie Mac average 30 year fixed conventional rate for the last six months. You can see that rates have really gone up over 2022, and beyond the last six months there have been some of the biggest spikes that we’ve ever seen in interest rates, which this is how the economy balances itself out. Once we hit that almost five and a half mark, the average interest rate for the United States mortgage rate settles back down closer to 5%. So that ceiling of five and a half holds true and we’ll see where it goes from here. If inflation gets out of control, it’s possible that rates could go up even further, but it seems to be holding right around that lower five mark.
So where are the opportunities right now? The Fed says they will continue to raise rates. I actually saw on a local news outlet, a quote that said (and this is paraphrasing it): “…the Fed during COVID lowered mortgage rates.”
I see this in the media all the time, but it’s very important to understand that the Fed actually does not directly control interest rate or mortgage rates, they just influence short term rates such as credit card rates or car loans. So if the fed raises their short term rates later on this year—which they will do to combat inflation—how will that affect mortgage rates?
Because they’re battling inflation, raising the rates oftentimes has a positive effect on mortgage rates. You can see on the chart—when they raise their short term rates to fight inflation, the mortgage rates stop rising. But here’s the thing- if you have a lot of short term debt like credit cards or car payments, those rates will rise based on what the Fed says. So there’s a real chance that the interest you’re paying on short term loans over this next year could go up dramatically.
The opportunity then is to look at the equity and payments you have, and see if it makes sense to do a debt consolidation loan, maybe even put some money into the bank.
Now you might ask yourself as a homeowner, “Hey, I have a low rate already. Wouldn’t that be a terrible decision to take a higher rate?” And the answer to that question is possibly yes. But what we find is that you need to take a look at the entire picture to determine if it’s worth it. How much interest are you paying on other debts? How much interest are you paying on your current mortgage? If you were to wrap them all together and consolidate some debts, how much would that help you, and how much interest would that save per month?
Now here’s one thing that’s really interesting that a lot of people don’t consider- most people don’t hold their mortgage for very long. I don’t mean to say that a mortgage is temporary because obviously if you stop making your payments, you will get foreclosed on and run into trouble. But most mortgages are not held for 30 years. In fact, almost all mortgages are refinanced within just a few years. So investors and money managers look at mortgages more as a short term tool to help them get where they want to be.
Here’s a quick example: I had a client—we’ll call her Sally— who came in and had debts she wanted to pay off. We took a look at her situation and considered doing a refinance. We ended up doing the refinance because of her setup. Her interest rate on her home loan was about a half a percent higher than what it could have been because of where she was at. So that wasn’t too tantalizing. However, she looked at how much it was saving her per month on her budget, and it was over $750 a month. So she went ahead and pulled the trigger. Now a few months down the road, mortgage rates dropped and her credit score went up because she had paid off all of those other debts that were hurting her score.
So we refinanced again, and because of the higher credit score and the lower rates on what she had previously, her payment went down another $220. So the net was very high– it was almost a thousand dollars a month savings for her.Then we went one step further. We set up a payment plan that reduced the total amount of interest she was paying over her original mortgage before consolidating her debt. So there’s a lot of different ways to structure these things, even if the rates are higher than what you’re hoping.
If you’re wondering about what opportunities are out there right now, there’s a lot of Utah homeowners that could drop their monthly debt payments by a substantial amount. It’s also not a bad idea to look into using your current equity to springboard into getting an investment property or another piece of real estate. So lots of opportunities. The key is really to look at what equity you have right now and how you can tool that in a safe and responsible manner to get to where you want to be.
Using home equity can also oftentimes be very inexpensive compared to other types of financing. There could be tax benefits rates on a mortgage typically much better than other types of financing such as commercial financing.
So my advice today would be to take a look at the overall picture of your finances, considering all your assets. If you call in, you can talk to a cheerful member of our team and we’ll go through all of your assets and look at what puzzle pieces there are to help you get where you want to be. You don’t want to miss out on opportunities because of a piece of information that you are missing or misunderstanding.
So give us a call today! Tell us your story, tell us what you’re looking to do and let’s put all of those assets on the table. And we’ll see if we can’t help you move to the next level or where you want to be based on what opportunities are out there today.
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