What should you know about higher interest rates as a buyer?

Mortgage interest rates have risen dramatically in recent months. If you’re like many buyers who have hit the pause button waiting for rates to come back down, you may be doing yourself a disservice as the influx of newly available homes gives buyers many more homes to choose from as well as the possibility to negotiate. Interest rates are a major component of many buyers’ buying decisions, but shouldn’t be the only factor in your decision-making. As such, let’s give us an overview of what you need to know about mortgage rates and why now may be the time to exploit this window of opportunity.


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Historical Perspective on Mortgage Rates

This time last year, a 30-year fixed mortgage rate was around 2.99%, a steal from the current rate of 6.01%. In recent months, the rate has fluctuated between 5 and 5.5%, which is still historically low.

Looking back over the past 50 years, the average rate on a 30-year fixed mortgage has been around 8%, with the highest average on record at 18.45% in 1981.

Source: Macrotrends

Right now, we’re in an ideal position – somewhere between lower rates and the possibility of them climbing even higher. Buying a home now can work in your best interest. Here’s why:

Looking into our “Captain Obvious” crystal ball, we can see that future mortgage rates will either be higher, the same or lower. If rates go up, you’ll be grateful you bought at today’s price and got a lower rate. If the rates stay the same, it is likely that your home value will increase over the next two years and it is highly likely that your home value will increase in the long term, so you would have built up equity. If you capture today’s price and interest rates drop anytime in the future, you can still refinance at a lower rate and still benefit from having bought at yesterday’s price.

The Fed raised the federal funds rate in an attempt to control inflation. These increases curb inflation by inhibiting economic growth. Once inflation is under control and economic growth has stalled, the Fed will cut rates to stimulate the economy. When this happens, we can expect real estate buying activity to increase as mortgage rates fall. Such activity will create the kind of competition that we have experienced in recent years. So, as a buyer, you decide which battle to fight: Competition and price inflation, or less competition, more options and higher interest rates.

How to get the best mortgage rates

Trevor H. Halpern, JD is North&Co’s #1 Independent Agent, based in Phoenix. and the founder of the Halpern Residential real estate group.

Pre-approval. Mortgage rates can vary widely from lender to lender, so it’s best to talk to several to ensure you get the best combination of rate, service and strategy. Not all lenders are created equal, so don’t be seduced by the potential low rates offered by online clearinghouses. It’s always best to speak with professionals in the field, as they will partner with you to provide you with the best combination of rate, service and strategy. Lending Strategy is extremely valuable to you as a consumer, as experienced loan officers will help you craft lending scenarios tailored to your specific situation that will best serve your financial interests. Your best bet for moving forward with a purchase is to speak with lenders, work out a lending strategy that works best for you, and receive a pre-qualification letter which is your ticket to purchase. If you don’t know where to start to find a reputable lender, ask us!

Seller’s Concessions. In the Phoenix market, analysts at the Cromford Report say supply has increased dramatically – 92% over the past month. Meanwhile, sales are down 10% and contract signups are also down about 17% from the same time last year. This means buyers have more bargaining power with negotiations. Here’s how it works:

As a buyer, you can make a transaction work more in your favor. A seller’s concession means that the seller will give you, the buyer, money for your closing costs. You can then spend some of that money on lowering your interest rate, sometimes up to a full percentage. It ultimately depends on your credit, the purchase price of the home, and the size of the loan, but a lender can walk you through the process.

Asking concessions from a seller is something we haven’t been able to do in the past two years due to the seller’s high market advantage (low supply and high demand). We are at an opportune time to do this now, depending on the situation, and apply it to lower your overall rate.

Buy low. If you have enough money saved up front to invest in your home, consider paying points at closing to lower your interest rate. Generally, 1 point corresponds to 1% of the loan amount. In general terms, it can be a very good idea to lower your mortgage rate if you plan to stay in your home for a long time with the intention of refinancing later.

Interest only loan. A variable rate mortgage (ARM) is an interest rate that can vary with market conditions, causing your mortgage payment to fluctuate. You can fix the interest rate for a certain period. One of our lending partners suggested that a 7 year arm is a better option as it is the same rate as a 5 year arm. You get more years and your payment will be a little lower. However, this option is only good in the short term, because you only repay your interest, not your principal.

Speak to an expert and qualified agent

Navigating a dynamic housing market like Phoenix is ​​no easy task, especially when there are so many delicate nuances with fluctuating mortgage rates and changes in the overall market.

At Halpern Residential, you’ll have an expert, qualified agent in your area, helping you find your dream home while crunching the numbers and guiding you through what can sometimes be a confusing and dynamic process.

We are rooted in the local market, connected to a network of lenders, appraisers, lawyers, etc. quality, all those you will need to hold the keys to your future home. Call us when you’re ready and start your home buying journey with Halpern Residential.

Trevor H. Halpern, JD is North&Co’s #1 Independent Agent, based in Phoenix. and the CEO of Halpern Residential real estate group. As a native of Phoenix, Halpern’s in-depth knowledge of people and property has enabled him to create client success in all areas of the city. As a graduate of ASU’s College of Law, Halpern prides himself on delivering high-level strategy, effective negotiations, and precise tactical execution. Since 2011, Halpern has sold over $130 million in real estate and is in the top 1% of real estate agents in the Greater Phoenix area.

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