The Surprising Benefits of Buying a Home When Rates Are Going Up

While rising mortgage rates may seem counterintuitive, there are actually some benefits to buying a home in this type of market. In this blog post, we'll explore why this is the case and how you can take advantage of it.

First, let's define what we mean by mortgage rates. A mortgage rate is the interest rate you'll pay on your home loan. This rate is set by lenders based on a variety of factors, including Loan Program, credit score, downpayment, property type, county, city, state, loan amount and your income documentation to name a few. Then add in current events, politics and economic reports and you will see given the world we live in today, why mortgage rates fluctuate significantly from day to day or week to week.

Now, let's consider why rising mortgage rates can be a good thing for home buyers. One reason is that when rates go up, it can make it harder for sellers to find buyers. This can lead to more motivated sellers who are willing to offer credits to buyers in order to close the deal. Seller credits can help offset some of the costs associated with buying a home, such as closing costs or home inspections.

Buying when rates are low Vs. When they are higher.

Let's take a property listed at $1,000,000 when rates are falling. Here in the SF Bay Area properties at $1M were usually going for $1,200,000 +

When mortgage rates were 4% and a home was listed for $1,000,000, buyers were outbidding each other and buying around $1,200,000, putting 10% down, and likely getting a 30-year fixed-rate mortgage at the prevailing rate of 4%. Assuming a loan amount of $1,080,000 (90% of the purchase price), the monthly payment would be around $5,147.

Now, in a rising rate environment with uncertainty it's common buyers can offer $980,000, get a seller credit to pay closing costs, put 10% down, and get a 30-year fixed-rate mortgage at 6%. Assuming a loan amount of $882,000 (90% of the purchase price), the monthly payment would be around $5,292.

So you're thinking, see the payment is STILL higher why would anyone do this....

Well let's add in the difference including property taxes.

Average property tax rate in CA is 1.25% (some less, some more will do another post on that subject tomorrow)

$1,200,000 x 1.25% = $15,000 Annually or $1,250 Monthly

$980,000 x 1.25% = $12,250 Annually or $1,020 Monthly

The Purchase at $1.2m to $5,147 (mortgage) + $1,250 (taxes)

= $6,397

The Purchase at $980,000 would be $5,292 (mortgage) + $1,020 (taxes)

= $6,312

You are actually paying less monthly with a higher rate.

It's human nature to want the lowest rate, it's not like anyone wants to pay interest. BUT WAIT..... The amount of interest you pay on your home loan can be deducted from your taxable income when you file your taxes. This is known as the mortgage interest deduction, and it is one of the most significant tax benefits of owning a home.

* disclaimer for the haters* while paying more interest on your home loan may result in a larger mortgage interest deduction, the amount of your deduction is subject to certain limits and depends on whether you choose to itemize your deductions on your tax return. It's important to consult with a tax professional to determine how much you can deduct and whether itemizing your deductions is the best option for your individual situation.

Now Let's take another element into consideration. When rates fall, it usually takes a few weeks for homebuyers to even realize they did. Then they are excited to buy with a lower payment but by the time they get into contract the rates are back up. EXTREMELY FRUSTRATING

So Chiggity Check This Out, if you're always prepared to write an offer (have a full loan approval not just a pre-approval and monthly budget set) - you can come in lower with your offer and ask for credits even if the day you do that rates are down. Working with mortgage professionals that always have their finger on the pulse like us at LocalMortgage.io and a real estate agent that moves quick, we will help navigate you into a new home with optimal terms.

Moral of the story.. Don't just let mortgage rates decide when you should buy, let a monthly payment you are comfortable with and work with professionals that can help you use all this constantly changing data in the news to your advantage.

Like YG said "Scared Money Don't Make no Money" & Suga Free said "if you stay ready, you ain't got to get ready"

Reach out today and let us help come up with a strategy to help you become a homeowner!