Don't let your customers hit the ‘pause’ button because of a rise in mortgage rates
By Susan McHan, CEO, Co-Founder and President, Mortgage Bank, Opes Advisors
Posted by: RE Technology
When mortgage rates rise, the instant reaction among real estate professionals can often be a concern that the housing market is going to take a pause. Yet, the true impact of the most recent increase in mortgage rates won't prevent the vast majority of today's home buyers from qualifying for a mortgage.
Real estate agents and mortgage advisors can help buyers avoid hitting the pause button by educating their clients on what an increase in mortgage rates really means.
Let's put today's mortgage rates into perspective with four important facts. First, mortgage rates are lower today than they ever were from 1971, when Freddie Mac first started reporting on mortgage rates, until 2011 (see chart). In fact, when you look at mortgage payments, we pay 20 percent less than we did in 1989 for a mortgage, adjusted for inflation. And compared with the peak in housing prices in July 2007, we are paying 35 percent less in mortgage payments today than we did then. It's important to remember that we are still paying less for our mortgages today.
Second, a half point increase in a mortgage interest rate is less than $30 a month more for every $100,000 borrowed.
Third, history tells us that mortgage interest rates are really never static. In fact, mortgage interest rates over the last 28 years have remained "range-bound." When interest rates move higher or lower, they tend to move up and down within a range. Interest rates don't just increase and stay there – and that's another reason why it's really impossible to "catch" the lowest interest rate.
Fourth, over the last 200 years, U.S. interest rates have a historical average of 5.18 percent.
Calming the emotional reaction
It's human nature to fear the unknown. Not knowing the whole story is one of the reasons why some home buyers take a pause when they hear mortgage rates are going up. Without an understanding of what an increase in mortgage rates really means to them, they are more likely to make an assumption that simply isn't relevant to their particular situation.
Home buyers may hear only one side of the story on the news – that mortgage rates have increased – and what they will see is a worse-case scenario: a very small number of first-time home buyers who were barely able to qualify before now can't because of a rise in rates. However for the vast majority of people shopping for a home, rates are so low and so attractive that even with the increase, mortgage rates remain in the lowest range they have ever been.
Information produces confidence
We will continually do our best at educating home buyers, potential home buyers and sellers about the real impact of a rise in mortgage rates and that mortgage rates are range-bound, and still remain within the lowest range ever. In your marketplace, you can use your highly valued expertise to help shape the views of your clients by educating them about mortgage rates, so they can move forward confidently. One of the ways to help your buyers avoid hitting the pause button.
Susan McHan is one of the most influential executives in the mortgage industry as co-founder, CEO, and President of Mortgage Banking at Opes Advisors, a Top 25 mortgage banking and investment management firm, known for its invention of the industry's first real estate decision technology Opes Advantage.