Under The Hood Of The Mortgage Machine With Mike Cass

Mike Cass

DEALING WITH MORTGAGE RATES ON THE RISE

MORTGAGE RATES IN UPTOWN: I’ve been in the business over five years and never seen anything like the interest rate craziness lately – what’s a real estate agent to do?

CASS: You are correct. This hasn’t happened in over five years; but for those of you with 10-plus years in the business, I’m sure your perspective is different. Along the lines of “you ain’t seen nuthin yet.” We have been stable and doing fix 30 lending for so long we may have forgotten much of what we once knew … that what comes down may go up again. The historical longer-term perspective reminds us that interest rates haven’t always been below 4.5 percent on a 30-year fixed rate mortgage!

WHY ARE RATES UP?

Rates rise with a healthy, growing economy and increased government spending. There is much more to be said on this, by smarter people than me, but let’s move on to what you can do about it:

#1 STAY FOCUSED ON YOUR CORE ACTIVITIES. Fixating on interest rates will not help you locate more sellers or buyers, so keep your focus on real estate. If you could truly know where interest rates were going, I’m not sure how that would actually help you do more business. For that matter, I could say the same to my loan officers.

#2 BE INFORMED. While you may not require perfect knowledge of where interest rates are going, you should be conversant enough to give your clients confidence. Lots of great resources are available, starting with your mortgage loan officer or blogs by sites such as Mortgage News Daily (www.mortgagenewsdaily.com/) and others.

#3 HAVE A TRUSTED LENDING PARTNER. An experienced loan officer can be very beneficial consulting with your clients on the rate environment, so they remain confident in their home hunt, and loan officers do have ways to help in a rising rate environment that can be useful.

#4 EXTENDED RATE LOCKS. While the stable rate environment of the last few years has gotten us out of the practice of rate lock decisions, there are lenders that off er extended rate lock protection to your buyers at no upfront cost.

#5 RETHINK YOUR POSITION ON ARM PRODUCTS. For most of the last decade, the 30-year fixed rate mortgage has been the common choice, but we can expect to see a resurgence in the 3/1, 5/1, 7/10 or even 10/1 ARM products that can off er a substantially lower interest rate than a 30-year mortgage while offering fixed interest rates and payments for three, five, seven or 10 years before the adjustable part of the mortgage kicks in. The average mortgage is either refinanced or paid off when the borrower moves, which typically happens every five to seven years. Why assume you need a fixed rate for a full 30 years when you can get a nice discounted rate that will last for seven years?

#6 TEMPORARY INTEREST RATE BUYDOWN. If you have a rate sensitive borrower with improving income prospects a short-term buydown of the current market rates might be just the ticket to keep them engaged to buy a home now instead of waiting. With a temporary buydown of interest rates using funds from the seller or lender your client can secure discounted interest rates for one, two or three years (for example).

#7 PERMANENT INTEREST RATE BUYDOWNS. If you have a client with some extra money or seller concessions you can use those funds to buy down the interest rates permanently or the life of the loan versus just a few years … not an option for everyone and your loan officer can help with the math for your clients.

#8 IT’S ABOUT PAYMENT, NOT RATE. I wish I had a nickel for every borrower that called me worried about an interest rate increase and were pleasantly surprised at the small impact of that interest rate increase on their monthly housing payment. Make sure they talk to a loan officer about the math.

#9 IF NOT NOW, WHEN? They may not like interest rates at 4.625 percent versus the 4.25 percent they have been hearing in the recent past … but in accounting theory that is termed “sunk cost” thinking. They may not like 4.625 percent, but will they like 4.75 percent more if they choose to wait? Do they want a house or not?

Steady as she goes and stay focused on what makes you a successful real estate agent!

MIKE CASS INVITES YOU TO SUBMIT YOUR QUESTIONS TO BE ADDRESSED IN FUTURE COLUMNS. QUESTIONS MAY BE EDITED FOR SPACE OR CLARITY. SEND YOUR QUESTIONS TO MCASS@RESULTSMORTGAGE.COM. MIKE CASS HAS SERVED IN VARIOUS MORTGAGE ROLES INCLUDING LOAN ORIGINATION, LOAN PROCESSING, UNDERWRITING, CLOSING, POST-CLOSING AND FINANCE. HE DRAWS ON THESE EXPERIENCES AS PRESIDENT OF RESULTS MORTGAGE LLC, A TWIN CITIES BASED LENDER.