Interest rates are higher than they’ve been in recent years. But it’s a good time to take a step back and consider where rates have been historically—and what your alternatives are for navigating the current market as a buyer.
The last time 30-year fixed rates were above 6.5% was in 2008. But prior to 2008 and all the way back to 1971, rates were above 6.5%. Today’s rates are high when compared with recent years, but still very low on a historical basis. It’s good to keep this in perspective before you panic about where rates are right now.
My colleague, Gordon Friedman at Guarantee Mortgage put together a few pointers for all the buyers out there. I’d like to share his insights because I think they’ll come in handy in a real estate search:
Jumbo rates are lower than conforming rates. Most San Francisco buyers need a jumbo loan (amounts over $647,200). Jumbo rates are lower than conforming rates due to fees and restrictions imposed on Fannie Mae and Freddie Mac. This means you don’t have to accept higher, conforming rates for your purchase.
Higher rates mean higher monthly payments and lower maximum purchase prices, but a softer market helps. If you were qualified for a $1.4 million purchase with 20% down at the beginning of the year, your maximum purchase price has been cut to around $1,050,000 at current rates. But prices are definitely weaker, which will help you regain some of that purchasing power.
Consider adjustable-rate and interest-only mortgages. Borrowers who have adjustable-rate loans have historically paid less interest than borrowers with 30-year fixed rates locked in. Even so, most people haven’t been willing to accept the rate volatility which comes with adjustable-rate mortgages. Gordon believes there’s a good chance rates may decline later this year once the Fed has started to get inflation under control. If this happens, it could make sense to accept a lower rate for an adjustable-rate mortgage now, instead of locking in today’s high 30-year fixed rates. Refinancing to a 30-year fixed later is always an option.
Consider paying points to lower your rate. One point is 1% of the loan amount borrowed. Paying a point could lower your rate .25%-.375% in today’s market. This could mean thousands of dollars in savings over several years. And of course, it’s possible to ask sellers to cover the costs of that point through a credit.
Check out Gordon’s Web site, where you can find his contact information if you’d like to connect with him about loan questions or preapprovals.