So what does it mean if you’re selling or buying a home?
“We fell in love with the place, we fell in love with the house,” Mohamad Hussein said. “We got it, we felt lucky.”
Breathing a sigh of relief, the first home buyer closed his Cliffside Park property last March.
Hussein said if he applied today, his 2.5% interest rate on a 30-year fixed mortgage would be 6.5%.
His family couldn’t afford to buy their dream house now.
For example, take a $500,000 mortgage.
A four-point increase in the interest rate on a 30-year fixed mortgage would cost the homeowner an additional $1,185 per month in interest.
That’s $14,220 per year and an additional $426,600 in interest over the life of the loan.
“Our first time buyers are going to be taken off the market,” Robert White said.
White, president of New Jersey Realtors, said buyers with low margins on what they’ve saved and who can afford to pay monthly will choose to keep renting and wait as mortgage rates are expected to keep rising. .
“You might see somewhere between 7.5 and 8%, but that fights inflation and then rates will come back down,” White said.
His advice to potential buyers is to lock in a lower rate from time to time and then refinance.
“They may be paying a higher rate now, but they can refinance those loans at a later date at a lower interest rate,” White said.
White said don’t listen to advice like buying your rate with points doesn’t pay off in the long run, or using a shorter loan term.
“It’s going to cost the buyer 60% more on the monthly payment,” White said.
He also advises avoiding ARMs, adjustable rate mortgages, with attractive, low introductory rates.
“Here’s what could happen, you lock yourself into a 3-5 year ARM and let’s say rates have gone up. Well now you can’t refi because you’re already locked into that rate and it’s going to go up. expiration of this RMA,” White said.
What buyers can do in this market is try to put down a bigger deposit. This will present you as a stronger buyer and help you with the amount of equity you put into the home.
“You’re not going to see meaningful interest rates unless you put in 4% or more,” White said.
Another trick is to reduce the size of your wishlist.
Consider a condo or townhouse instead of house for now or broaden your search to more remote areas and use a direct lender, a reputable bank with guaranteed rates.
“The product they are promoting will definitely stay the same from start to finish,” White said.
And finally, lenders want your business, so put them in competition. Shop around and consider working with a licensed mortgage broker, they can help you through uncertain times.
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