A Look At Interest Rates. Why Is Everyone Being Dramatic?
“Interest rates are rising! We all must stop buying houses! Lets hide in our houses!!!!”
People are being a bit dramatic.
I had a conversation with a San Francisco Mortgage Lender who works at a very reputable bank and this was our conversation. Pretty much word for word.
“PEOPLE ARE BEING DRAMATIC, MILLENNIALS HAVE NOT LIVED THROUGH A TIME WHEN INTEREST RATES WERE HIGHER SO THEY HAVE NO PERSPECTIVE AND NOTHING TO COMPARE IT TO. THESE ARE NORMAL RATES, IN FACT THESE RATES WERE HERE IN 2018 PEOPLE JUST FORGOT OR DON’T KNOW. THE RATES ARE IN THE 4S. “
People just need a little perspective.
If you are working with a mortgage broker their rates are in the 5s, but a banker can offer less.
A mortgage broker is a correspondent lender, they are the middle man between you and the bank, the bank that actually funds the loan. Banks give their best rates to their employees. So a mortgage banker will have better rates than a broker, apparently. Also a banker might match pricing if you get a better price.
Many banks offer relationship pricing ( 401k rollovers, IRA rollovers, stock transfers in kind)
“A lot of google or tech clients have vested stock sitting into an account if they roll over into a bank account they can get a big discount”
According to this mortgage broker people will start looking at adjustable rate mortgages.
“When rates go up, people panic, they start moving away from 30 fixed rate to adjustable rates because the monthly payments will save them a couple hundred dollars a month”
The reasons people choose a 30 year fixed loan are if interest rates are low or will keep the house a long time. Fixed rate mortgages are a great way to hedge against inflation and protect you when rates are low.
Also, we are seeing a lot of interest only loans because of cash flow, the payments are lower because you only pay principle on annual basis.
A standard mortgage is interest and principle. The principle is the actual amount you borrowed and interest is a percentage that is based on the principle.
Interest only your monthly payments are low and you can pay a bigger chunk of principle once a year instead of a higher monthly payment.
There are two ways to build equity
Appreciation
Paying down principle.
The moral of this story is, people are being dramatic. Interest rates are not that much higher and in the grand scheme of things are still super SUPER low.
Here is a visual for you
