It seems like every time you listen to the news, the Federal Reserve raised interest rates again. Ouch! But don’t despair. We checked in with Owner/Broker Caroline Strok at Ocotillo Home Lending (OcotilloHomeLending.com), to get the scoop on all you need to know about rates to fulfill your homeowner dreams.
Are there any ways buyers can avoid or lower a potential interest rate if they want to buy a home?
Actually, there is. For some buyers, a Buy Down Program might be right. This program gives the seller an attractive incentive to offer buyers to purchase their home. It gives the buyers the ability to secure a loan between 1%-2% lower interest rate than the market interest rate at the cost of the seller.
Can you explain how this works?
Of course. Let’s say you have a 2-Year Buy Down Mortgage Loan on a purchase price of $300K. The market rate is 6.25% for the buyers at closing. With the Buy Down Program, this makes the first-year rate (months 1-12) 4.99%. (*Due to this being the lowest market rate on that day, if there was an option to go lower it will be offered). Year 2 payments (months 13-24) will be at a rate of 5.25%. The monthly savings for the buyer is $227 a month the first year and $178 the second year. On the 25th monthly payment, the rate goes to the initial rate of 6.25%. The cost to the seller is $4,855, which they will pay to the investor.
Is there anything people should keep in mind about rates?
Look to the 10-year Treasury Note. There are many factors that can impact the growth or decline of interest rates, including government policies, economic realities, etc. Knowing how the 10-year Treasury yields affect the rise or fall of mortgage rates can prove useful. As the yield curves change on 10-Year Treasury bonds and notes they influence mortgage rates.
Let’s review historically what the 10-year Treasury Note has done since it opened in 1962. The yearly average note in 1982 was 14.19%. In 1991, it was 7.86%. Today, we are at an approximate 52-week average of 4.325%.
Since rates are high, should one consideration be just waiting to purchase a home?
One important thing to keep in mind is that you marry your house, not your payment. Trying to purchase at the “right time” is not possible if you focus on the rate. When you are looking for a home, you are searching for somewhere to rest your head at night and possibly raise a family. It is important to find a home you love and are comfortable with the payment now.
Historically, every 16-24 months the 10-year Treasury Note will drop low enough to allow you to refi and lower your monthly mortgage payment.