What’s up with these interest rates?
This post will offer some insight and suggestions from an experienced mortgage professional.
Lisa Sullivan, with Princeton Mortgage, is one of the mortgage officers on my preferred lender list. She has been a valuable resource to my clients since I got my real estate license in 2008. On top of being super knowledgeable, she has always gone the extra mile to explain things to my qualified buyers so they choose the best program and understand the process. She has also helped many potential buyers who were told they could not get a loan become qualified by educating them on how to build or repair their credit. Lisa agreed to answer some interview questions which you will find below.
Lisa, thank you for taking the time to answer these questions. Jumping right in, how long have you been in the mortgage industry business?
33 years since October of 1989. A time when clients were ecstatic to be refinancing into a 9% interest rate from being at 13% & up.
My first house was an owner financed purchase at 8% and I refinanced years later for 6.5 which was the current rate. I thought I had hit the jackpot.
What’s your favorite part of the job?
Helping clients find clarity in their why. By discussing different loan options & strategies, I can help them to be in their best financial position to accomplish their goals. And everyone is completely different.
A lot of my clients ask me how raising the interest rate helps fight inflation. How would you answer that?
The purpose of raising rates is to squelch money coming into the economy. In essence, the proverbial horse is long out of the barn, but we’re just now deciding to keep slamming the door shut. Inflation is caused by an influx of money into the economy. This occurred due to the excess stimulus that was poured into the economy because of Covid. Because effects are not felt immediately, and the majority of the country was locked down, the Fed felt that inflation was “transitory” and did not act at that point to begin to raise rates. So inflation(Spending) continued at break neck pace. In order to now attempt to slow that down, the brake pedal needs to be stomped on repeatedly or so the Fed thinks. All measures are history and it takes about 90 days for the higher rate to impact a consumers decision. Think of it this way: Nov 2nd rates are hiked .75%, you get your credit card statement in December & see that your Minimum payment due has gone up, so that may impact your buying decisions in January, 90 days after the hike.
Now when it comes to mortgage rates, the nemesis of bonds & mortgage backed securities is inflation. When you’re making a long term investment, the goal is to have your investment earn money, but the fear is inflation will eat up all your earnings. Long term rates go up because investors need to be sure their investment will be worth something after inflation is accounted for.
That does put it in perspective. I talk to many people each week who can’t find affordable rentals but are also shocked at how much the current interest rate would affect their monthly house payment. Do you have any advice or suggested programs to help potential home buyers who feel like interest rates are making home ownership unaffordable?
I would ask if the payment is unaffordable now due to a situational circumstance, like a young professional just starting out in their career with the expectation of significant raises in the next year or two. Or a couple in which one person is staying home with kids but within the next year or 2 the kids will be in school & the parent will be returning to the work force? If that’s the case, then a 2-1 buydown could be a great solution. The rate starts out 2% below the regular rate for the first year. An example would be if rates are 7% the 1st year their mortgage payment would be based on 5% on a $300,000 loan, a savings of $385 a month! The second year would then be 6%, a savings of $192 per month & then the 3rd through the 30th year the payment would remain the same at the 7% rate.
This is a great product because it allows someone to buy now & grow into the loan as their circumstances adjust. I would just caution people to be prepared for those increases & have a plan. Refinancing to a lower rate is Not a plan, it is a Hope. If rates go down, yes, they can refinance. There is no Guarantee that rates will go down. Does it look like they will? Yes, but I’m unwilling to encourage someone to commit to the biggest financial decision of their life, if they can’t afford it now.
Unfortunately, it’s equally unaffordable to rent & with renting they aren’t benefiting from any equity, so they are just throwing that money away.
I suggest taking a good look at budget & priorities. Maybe for a while, they commit to cutting unnecessary expenses, gym memberships, spotify, eating out & maybe pick up a side hustle for a bit. It really comes down to priorities sometimes: short term discomfort for long term gain. If they are really committed to homeownership and have a plan, it’s never a matter of if, it’s a matter of when. I’d suggest they call a reputable loan officer who wants to assist them in preparing for their future & help them with getting their budget & goals inline.
I’d also say, instead of waiting for THE House with all the bells & whistles, buy what you can afford now and start to build equity. It doesn’t need to be your forever house. Start with something that maybe needs a little TLC. Live in it & put some work into it. Then down the line, you may want to sell it to buy up or keep it and rent it out to start a passive income stream. If you’re committed to home ownership, there’s a way to get there!
That is a lot of good and useful information! Is there anything else you would like to add?
I’d say if you want to buy a home, don’t give up. Maybe move in with family for awhile or get some roommates if you need to rent temporarily. Stick to a budget, put some money away, and make good choices.
Thank you so much, Lisa, for taking time out of your busy schedule to answer these questions. What is the best way to reach you if someone has questions or wants to discuss options with you?
The best way to reach me is to shoot me a text 843-421-0102 to schedule a call. People hate phone tag so just shoot me a text with your name & what you’d like to discuss & I’ll text you back with time slots available so we can have a focused conversation. You can also email me: Lisa Sullivan lsullivan@princetonmortgage.
This has been an interview with Lisa Sullivan of Princeton Mortgage NMLS#113856. She’s happy to answer any loan related questions and I’m happy to answer any real estate related questions you may have.
Hope everyone has a great weekend!