Why Waiting for Mortgage Rates to Drop Could Hurt Your Borrower
Understanding the impact of mortgage interest rates is crucial for borrowers, as fluctuating rates can significantly affect their financial decisions.
Are your borrowers sitting on the sidelines, waiting for mortgage interest rates to improve? Shopping on rate alone is not always the best mindset for borrowers.
Let’s explore what this waiting might cost borrowers considering the impact.
| Buying Today | Buying 2 Years from Now | |
| Home Price | $400,000 | $453,604 |
| Down Payment | $80,000 | $90,721 |
| Loan Amount | $320,000 | $362,883 |
| Interest Rate for 30 yr Fixed | 7.125% | 6.125% |
| Pricipal and Interest Payment | $2,155.90 | $2,204.92 |
Consider this example based on a 30-year fixed loan with a 20% down payment, where rates drop by one percentage point from 7.125% to 6.125%. While borrowers wait for a more favorable rate, home appreciation continues, resulting in their monthly payments being $51.02 higher than they would have been at the higher interest rate, along with an additional $10,721 required for their down payment. Additionally, borrowers may end up paying two more years of rent, which generates no equity or return. Over those two years, they miss out on over $56,000 in home equity as an impact of mortgage interest rates
By waiting for their preferred interest rate, borrowers incur higher monthly payments and increased down payment costs, as well as losing significant potential home equity that could have been gained if they had purchased earlier at the higher rate. This calculation uses the national average of 6.49% appreciation in home values. In many areas, the appreciation rate is even higher, making it more advantageous to buy now.
Borrowers rely on their loan officers to assist them in making informed decisions. Are you calculating these figures for your clients? Contact Kary or Michael to see how these numbers may vary in your area or to learn how Bankers’ Bank can assist first-time homebuyers and those needing over 80% financing. We offer various options, including programs that provide up to 100% Loan-to-Value (LTV). We are here to help!