Don’t Be Afraid of Interest Rates!
Interest rates are on the rise, but don’t let that scare you. Consumers Credit Union is here to help you navigate this unprecedented housing market. Tune into the latest episode of Money, I’m Home as Lynne is joined by Consumers mortgage experts David Pendley and Josh Summerfield to discuss why rising interest rates might not be such a bad thing.
0:00:07.5 Lynne Jarman-Johnson (LJJ): Money, I’m home! Welcome in. I’m Lynne Jarman-Johnson with Consumers Credit Union. Hey, you know what? We’ve got everything that you need from finance to fitness, and also the education for home buying. We have our experts, Josh Summerfield and David Pendley here with us from Consumers, they have so much experience in helping us get that home. And I’ll tell you what right now, that the market, is it getting tighter and tighter as the rates go up and up? Or are we seeing some people even thinking about, “Hey, maybe it’s time to sell.” David, let’s start with you.
0:00:40.7 David Pendley (DP): Yeah, it’s interesting, last week we saw the rates climb rather significantly. So, this year alone, we’ve gone from 3.5% to almost 6.5%, and right away you go, “Oh no! That’s horrible, that’s bad news, rates are going up.” Actually, it’s kind of good news because we’re getting more inventory on the market. We’re getting house prices that aren’t in an auction format, otherwise a house that’s selling for 275,000 will sell for about 275,000 or in that range versus selling for 50,000 over because it gets bid up. So even though you may be paying slightly higher on your interest rate, you’ll probably be paying less for your house this summer.
0:01:18.6 LJJ: Josh, it’s interesting, I’ve got a couple of kids who, one’s constructing a home right now, and the other has a home, and we were chatting over the weekend about how important it is to understand that because the interest rates are higher, that doesn’t mean that’s going to be there all long term on your loan. Like there might be a chance later in the future to re-finance, as an example, once the rates go down.
0:01:42.1 Josh Summerfield (JS): Yeah, absolutely. It’s important to remember, this may be your forever home, but it doesn’t have to be your forever interest rate. Things are going to go with the market. You look historically, rates have gone up and they come back down, and they go up, then they come down. So, there’s going to be opportunities in the future to get into a different loan program, get into a different interest rate, to be able to bring that payment back down, which is great, great news for home buyers right now. So you can get the house that you want and still be able to get a lower payment in the future.
0:02:10.8 LJJ: And thinking about it in those terms kind of leaves that fear out of it. I know that there’s a lot of discussion, I just saw a wonderful note from one of our members who loves the Lock and Shop rate, because it gives them peace of mind. David, tell us a little bit about that.
0:02:26.7 DP: We had hundreds of pre-approved buyers out there earnestly looking for homes, and then rates started going up. And we kind of thought, “What can we do?” Because they’re in transition, they’re trying to figure out, “What can I actually afford?” It’s like a moving target. So, we came up with a product, it’s not a new product, but we’ve kind of modeled it after our own offering, and it’s called Lock and Shop. So, you can actually lock in your rate today for 90 days and it’s kind of a capped rate, and if the rates go lower, you get the lower of the two rates, but you know what your ceiling rate is. So, we take our current rate, we add a quarter to it, we float it for 90 days, you got 90 days to find a house, and as soon as you find your dream house, you can actually lock in that rate. And if it’s lower, you get the lower of the two.
0:03:10.8 LJJ: Josh, what are you seeing out there? And what’s our mortgage loan officers and realtors saying about this summer? You mentioned there might be a little wiggle room in inventory, which is awesome.
0:03:20.6 JS: Yeah, I think everybody’s a little optimistic with what they’ve seen lately, with the market time on the houses, kind of normalizing a little bit. [chuckle] If a week on the market is normal, I guess, but… [chuckle]
0:03:32.1 LJJ: Isn’t that just crazy? [laughter]
0:03:34.7 JS: Yeah, it’s good news. But it’s giving people a little more confidence to put their own houses on the market, that they might be able to go find something. I think people were a little timid before, because it was, like David mentioned earlier, the auction style, and if you weren’t ready to give away your first born as part of your offer, you weren’t going to get the house. So, it is nice to see that trend changing a little bit, and I think it’s going to be a good summer as we get ready for the fall.
0:04:02.1 DP: And just to add to that, we saw so many sales, correct, contracts come through in the last year where people were waiving home inspections, they’re waiving appraisal rights, things like that, that are super important to a buyer. I want to know that that house is a strong qualitative house, and I want to know it’s worth what I’m paying. And so, it’s part of this increase in rates kind of normalizes the real estate market, again, where especially a first-time home buyer, they can do the appropriate due diligence to buy their house.
0:04:31.8 LJJ: And David, you mentioned appraisal and you mentioned inspection. Are those the same or are those different?
0:04:37.7 DP: No, there are two different things. The home inspection is solely for the buyer. And what it is, it’s to where you hire a licensed home inspector and he or she will go through your house and check everything from your furnace, to your roof, to the water systems, to the entire systems of the house, and everything, and give you a full detailed report of how the house is today and what it might need in the future, that’s just a qualitative part of it, and a lender doesn’t ask for that. On what we ask for is an appraisal, where we’re solely concerned with the value of your house, is it worth what you’re paying for it today? Because that’s our collateral.
0:05:15.0 LJJ: So, Josh, David, what I’m hearing is, “Hey, don’t be afraid, jump into the market if you’re thinking about selling, it might be the time to think about it seriously now, and don’t be afraid of those interest rates because it’s cyclical.” Right?
0:05:29.8 JS: Yeah, absolutely. It’s still a great time to buy, is still obviously a great time to sell, being able to take advantage of it now. There’s a lot of great programs on the market, ARM programs are kind of coming back, we’ve got a couple of those that are allowing people to kind of keep those payments down for a fixed period of time instead of going into that longer-term 30-year fix at a little bit higher rate. You can take a little bit of a risk and keep the lower payment now with the hopes of interest rates overall coming back down in the next five to seven years as well.
0:05:58.4 LJJ: That’s awesome. David, Josh, thank you so much for being with us. Money, I’m home! Hey, listen, if you have a topic, just send it our way at consumerscu.org, and let us know what you would like to talk about. We’d love to hear from you. Hey, thank you, Jake Esselink for your production skills, I hope everybody has a wonderful week and, hey, you know what? Get shopping!