Mortgage Rates

BARRON'S

This week’s market meditation is less of a meditation and more of an attempted saving grace. Over the next month I will be spelling out tips on how to buy AND sell real estate in this crazy mortgage rate world.

As discussed in the last newsletter, “basement children” (see 9/13/22newsletter) have come into cities, in mass quantities, sending the rental market into a frenzy. Every government on the planet is trying to figure out how to get their country’s economy safely out of the post-covid financial hurricane. The British pound had its worst ever collapse today. And finally, the US mortgage rates are climbing faster than the amount of TikToks a Gen Z makes per day. (I love you TikTok & my Gen Z’s).

I can’t solve the British economy, nor can I solve the US’s confusing “maybe recession”. But what I can do, is give the buyers out there some ideas on how to combat mortgage interest rates so that you all can afford a bit more than a shoe box.

Option #1 – Lock your damn rate!

After a long, exhausting and unproductive rental search, you go out to dinner, get a bottle of wine and start drinking away your sorrows. You talk it over with your family and decide this is the push you need to buy a condo. Enough with the damn rental market.

You immediately call me and tell me all your wishes and dreams in your new home. I listen thoughtfully and say, “first let’s figure out what you can afford”. I send you to my go to lender, Kyle Gillespie, senior vice president of mortgage lending for Proper Rate. What do you do next? Get pre-approved and lock in your damn rate!

What does this mean?

Mortgage interest rates vary day to day. Every time the FED increases the federal funds rate, inevitably the mortgage interest rates will increase as well. A mortgage lender will typically allow you to freeze the rate of the day for30 or 60 days. If you freeze your rate, you then have 30/60 days to close on a property at that locked in (“frozen”) interest rate. 30-60 days is not a lot of time to find and close on a property. However – you can pay a daily penalty for extending your freeze further. Say the penalty is $115/day.

Day 1 (Aug. 25, 2022) – you called me saying you want to buy a condo. Current rate on a 30-yearfixed mortgage is 5.99%. You listen to me and lock in this rate!

Day 33 (Sept. 27, 2022) – we find your dream condo and a lender can create your mortgage in 30 days. Current rate on a 30-year fixed mortgage is now 7.125%. Good news, today’s rate doesn’t matter. You locked in Aug. 25th rate.

Day 67 (Oct 31. 2022) – you close on your condo!! Congratulations!! You’re a proud and savvy homeowner!!

At closing, on Halloween, you paid $115/day for the 7 days past your rate lock period(60 days = Sept 24). Your total extra spend is

$805. A 300k loan at Aug 25th rate - 5.99% would give you a monthly payment of $1798. That same $300k loan at Sept 27th rate - 7.125% would give you monthly payment of $2021.

For a 1-time payment of $805, you bought yourself a $223/month savings on the life of your loan.