By Vera Chang 2/19/2022
Those who are hunting for a house may have been frightened by the rapidly rising interest rates in the past two months, but are the current market interest rates really that unbearable? If there is still a good interest rate in today's market, how can we seize it?
I am going to answer those questions in this article.
Are interest rates high or low right now?
First, let's take a look at the current interest rate trend. There is a real-time interest rate change trend on the homepage of my website, which you can use as a reference. But if you want to take a look at a longer term, the chart below shows the trend of interest rates over the past 50 years.
Over the past 50 years, except for the past two years of Pandemic, interest rates are now lower than 95% of the time. Just imagine, if it is stock market, would you hesitate to buy the stock when its price is at that low level comparing to other periods?
Source: Freddie Mac
Second, any economic data shouldn't be analyzed independently, because we are in a complex market. The correct way should be to compare mortgage rates against inflation rates.
For example, in the chart below, the inflation rate in January 2022 was 7.5%. The blue line is the 30-year owner occupier mortgage rate and the orange line is the inflation rate. Over the past 20 years, there has never been a period when inflation was higher than lending rates, except now.
Source：
What does this picture teach us？
The mortgage rate is your borrowing cost. The higher the interest rate is, for the owner-occupier, the higher the cost for you to hold the property, and for the investor, the higher the rate of return you require to achieve profitability.
The cost of holding real estate needs to be compared against your income growth, such as salary increases, small business profits, stock returns, etc. If your current owner-occupied mortgage interest rate is between 3.5-4%, I believe that in an era of inflation of more than 7%, most people's income growth in 2022 could easily exceed that amount.
Investors are more focused on rental income and growth in home values. Rental income is a stable cash flow and is an important consideration to ensure sustainable investment. It is a short-term investment metric, while the growth of house value is a long-term measurement of your investment outcome. According to where you are standing, house prices could increase or decrease, but as long as your investment horizon is long-term, the short-term price fluctuations will not affect your final investment profit. Similarly, at a time when inflations are soaring, taking into account the growth of rents and house prices, there is no problem at all to achieve an estimated income of 4-5%.
How to get a relatively good interest rate?
I have good news and bad news to share on this subject. The bad news is that, in a very efficient capital market, most traditional lender rates are similar because banks borrow at similar costs, unless it's a bank that lends with its own capital. But the good news is that the interest rate is actually determined by the time when you lock the interest rate, the qualification of the loan officer and your own conditions.。
First, a good judgment of the situation
Specifically, the market fluctuates every minute, and the fluctuation range is relatively large. For example, last week, due to the tension between Ukraine and Russia, the stock market and bond market in the United States were shaken a lot, so that 10 Year Treasury Yield, which is the index of 30 year mortgage rate, were suddenly pulled back from a week ago.
The following chart shows the trend of 10-year U.S. bond yields on February 18, 2022.
Source：https://www.cnbc.com/quotes/US10Y
Seizing the key points to lock in the interest rate is the most important factor, which requires your mortgage loan officer's good judgment, responsibility and preparation for the situation. On this point, my former clients may have a lot to good things to say, thank you in advance.
Second, success comes to those who prepare well and put in effort
Plenty of preparations! Plenty of preparations! Plenty of preparations! I have to repeat three times. A good deal must be the result of cooperation between the two parties, borrower and your loan officer. You hope for a good interest rate, but you may not be able to catch it unless we are only one button away from locking the interest rate.
So what Vera wants to say is, please contact the mortgage loan officer in advance, so that I/he/she has time to prepare your documents, check your credit history, make sure your loan has no problem. Then you can just focus on your families or the the house you are buying and leave the rest to Vera.
Third, choose the right product
A product that is very popular recently is the 10/6 ARM, with a fixed interest rate for the first ten years and a floating rate thereafter. Several important reasons for choosing this product are: 1. The interest rate is lower than the 30-year fixed; 2. Because of job changes, family population growth, etc., the holding period of most houses will not exceed 10 years; 3. Even if you choose to move, there is still a great chance that you will find an opportunity to refinance within 10 years. If you are looking at a 10 years horizon, 10/6 ARM is a good choice.
We can't change the economic situation, we can't influence the decision of Putin or the Fed, but we can find relatively good interest rates in all kinds of environments as long as you choose Vera. www.VeraChangMortgage.com
Contact：
WeChat：Your_MLO
Cell Phone：(347) 688-9191
Email：vera@VeraChangMortgage.com
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