TODAY’S INTEREST RATES
Interest rates have continued to inch higher.
Today, the average interest rate across America for a conventional 30 year fixed loan is 6.99%.
All eyes are on the Jobs Report this week and the CPI Inflation Report next week.
Remember that the January Jobs Report started this trend towards higher rates in February.
The US Jobs Report comes out Friday and if the job creation numbers are weak, I think we will see some nice interest rate improvement.
If we add that to a nice inflation drop next week, rates could erase some of the gains from February.
So if you want rates to go down, you’re a big fan of a weak Jobs Report and an Inflation Report showing a good drop in inflation.
If you lock a mortgage and interest rates drop significantly after you lock, you could be eligible for a Float Down.
A float down is when interest rates move .25% lower or more with same costs and you are able to negotiate your rate down.
This week, I’m the #1 fan of a weak Jobs Report!
DO HIGHER RATES PROVIDE A UNIQUE OPPORTUNITY?
This week, Barry Habib from MBS Highway provided a demonstration of how higher interest rates could be a unique opportunity for a homebuyer to benefit the most.
When the market hits or comes close to the bottom, buyers will usually benefit from great home appreciation as demand picks up.
It’s no secret that we have a ton of pent up demand for would-be home buyers that are on the sidelines due to higher rates and payments.
See the appreciation after the market hit the bottom in 2012.
In the example below, he illustrates this with a $500,000 purchase price with a $400,000 mortgage.
If rates go up 1%, the $400,000 mortgage will be $257 more per month or $3,084 more per year.
With demand down, the buyer can likely negotiate better terms. In this example, he shows the buyer negotiating $10,000 off the list price.
Everyone in the mortgage industry is expecting interest rates to go down.
As they come down, demand will pick up and home appreciation is likely to occur.
In the example below, he estimates 3% appreciation or $15,000.
He also assumes the below client will likely refinance to a lower rate when the circumstances make sense.
This may cost the client $5,000 in costs though that is dependent on the rate a customer chooses.
If this happens, the client would lose $3,084 in interest but would gain $25,000 in cost savings and appreciation.
Even when accounting for a $5,000 refi fee, the customer comes ahead $16,916 in the first year.
HOW DEBT HELPS AVOID INFLATION
In the video below, I explain the powerful principle of debt shifting inflation from a home owner to a mortgage holder.