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Are Rising Rates Getting You Down?

For years, we've been telling our clients to buy now while rates and prices are low. It's great advice! But because they've heard it so often, it may be difficult to stress to your buyers that changes appear to be affecting the market that could have a major impact on their purchasing power.

In 2018, we saw mortgage rates rise to their highest levels in years, and most economic outlooks predict rates will climb even higher in 2019. Many real estate professionals might see that as a negative effect on their business. But it doesn’t have to be.

So how do we show homebuyers that the opportunity to buy a desirable home in a desirable neighborhood at an affordable price really is slipping away?

It’s worth reminding them that every higher percentage point lowers their purchasing power. In practice, that means that at a mortgage interest rate of 4.750% (assumed APR of 4.870%*), a homebuyer can expect a monthly principal and interest payment of about $1,440 on a $345,000 home.** But at 5.750% (APR 5.880%*), $1,440 per month gets him a home worth $308,500.** That’s a difference of $36,500!

What does that translate to in real life? Less buying power might mean settling for a smaller home or one that’s not move-in ready. It could mean not getting into the neighborhood or school district they love, or having to deal with a longer commute. Bottom line: Rising rates limits their options.

By helping your clients understand that their purchasing power is decreasing and that they’ll be able to afford less home for their money, you’re providing them with a great service. Let's work together to help them get off the fence before rates leap even higher. As a trusted advisor, you have the ability to help them make the right decision at the right time.


*APR (annual percentage rate) is based on a 1% origination fee and $1,000 in other fees. For example only. Program rates, terms, and conditions are subject to change at any time and may vary based on borrower’s credit history.

**Assumes 30-year fixed, 20% down. Monthly payment reflects principal and interest only.

The following is for example purposes only. Example loan scenario: If borrower with a 680 FICO score and 33% debt-to-income (DTI) ratio purchases a home at $345,000, provides a 20% down payment (loan amount $276,000), and obtains a 30-year fixed rate mortgage with an interest rate of 4.750% (assumed APR of 4.870%*), the repayment terms would include a monthly principal and interest payment of $1,440. Does not include applicable taxes and insurance. The actual obligation will be greater. All loans are subject to credit and property approval. Certain restrictions may apply.

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