by Michael L. Baker, Sr. Mortgage Loan Officer at Fountain Mortgage.
I deal in interest rates. All day, every day. And a question I get constantly from friends, family and clients is, “How BAD are interest rates now?” And honestly, that is a tricky question to answer. In today’s environment, over the last 10 years, we have seen rates as low as they have been in 100 years! For the past 5 years seeing rates in the 3’s on the 30 year fixed was “normal”. It is something we have all gotten used to. Since the beginning of the year however, we have seen rates creep up steadily now into the 4’s. In terms of what rates “feel” like… they “feel” BAD! I get that. But it always helps to put things into perspective.
You have all heard the stories of your parents, aunts or uncles who bought a house in the 80’s with an 18% interest rate. You’ve also heard these same people say they walked to school up hill, both ways, in the snow and freezing rain! However, for once, they’re aren’t pulling your leg! Just check out the graph below of roughly the last 50 years.
By looking at the past we can put some perspective on today’s interest rate environment. Anyone that tells me a rate in the 4’s is just TOO high, I’d offer to trade them out for a rate from roughly 1982 at 18%! You wouldn’t do that, but I do understand the frustration with rates going up roughly .50% in just 2-3 months time. Low rates became the “new normal”. We all got used to it, and it will take some time to get used to this raising rate environment for some. Other’s are out taking advantage of these still wonderful rates and they are buying houses or refinancing to take out some cash in the equity of their home to remodel while rates are still ridiculously low (by 1980’s standards)!
Lock or Float?
The real question to ask ourselves today is, do we LOCK in an interest rate and by that house, or wait on the sidelines for rates to “come back down”. There is a saying in our industry of “the trend is your friend” (even when the trend seems unfriendly). The point being is the trend is currently for rates to continue rising into the future. The Federal Reserve is still planning to raise their Fed Rate 3 more times this year. The economy is recovering (albeit slowly), housing prices continue to rise at a crazy rate, wages are increasing (again albeit slowly) and so all signs are pointing to interest rates continuing this upward climb into the future. There is an argument (based on the massive amount of debt we have and are continuing to accumulate as a country) that rates cannot climb forever, and will plateau out at some point (or perhaps retreat) but we aren’t there yet. So in the interim, now is the time to LOCK in that rate. Lock it in early and often! I’ve already made an argument that Waiting is the WORST thing you can do in THIS post. It’s a great read from a year ago, that is still completely relevant today.
What if rates come back down and you are completely WRONG Mike?
Listen, these views of rising rates aren’t just mine. This is information that I have gathered from following economists and analysts that are honestly WAY smarter than I am. All that being said, what IF rates do come back down? Hey, that’s okay too. There are many streamline loan options today that will allow you take advantage of rates dropping. Many that don’t require an additional appraisal (both the FHA and VA have streamline refi’s with no appraisal required). The point here is that IF rates come back down, there is nothing that says that you can’t refinance your home to take advantage of rates dropping. However, I am more worried that we will hit rates in the 5’s before we hit rates in the 3’s again. So I don’t want to give anyone this idea that “Mike said rates will come back down eventually!” as a certainty. If I had that crystal ball I would have played the winning Powerball numbers when the jackpot was closing in on $1 billion and I’d be sitting on a beach somewhere with a frozen concoction in hand!
PS, If it sounds like I can help you, please contact me directly through Linked In, email me at firstname.lastname@example.org or call/text me at 913-735-5363. If you’re not yet ready for a conversation, but you’d like to learn more about me and how I can help you or about the mortgage process in general, including great blog posts to send out to your clients, check out my website at http://www.michaelbakerhomeloans.com.