Why you should explore your financing options in this shifting market.
Are you keeping an open mind about your financing options? Today I want to talk to you about your options, but before I begin, it’s important for you to understand that I am not a lender. What I’m telling you today are my opinions based on the client interactions I have daily. If you’re seriously interested in buying a property, you should connect with a lender and explore your financing options.
What do I mean by exploring your options? A lot of our clients come to us and say that they want a 30-year fixed loan. That’s the safest type of loan, and they don’t want to find themselves in hot water if the market suddenly changes.
If that’s your mindset and you can afford the payments on a 30-year fixed mortgage, by all means, get a 30-year fixed loan. However, as the market shifts and the interest rates rise, affordability will dramatically change. We had rates around 3% a few months ago, but now we have interest rates in the mid-5% range.
When affordability changes, it becomes harder for people to pay for properties, so how will new buyers afford homes in our current market? The key is keeping an open mind. The average life of a loan is less than three years; it might even be less than two years. A couple of years ago, my lender said that the average homeowner sells or refinances their property within 1.8 years of buying. Most buyers are getting 30-year mortgages, but 99.9% of them will never pay off the whole 30-year life of their loan.
Maybe you should talk to your lender about a seven- or 10-year adjustable-rate mortgage. You’ll have a fixed rate for a time, and after seven or 10 years, that rate will adjust. However, you probably won’t make it that far into the loan.
You can also talk about interest-only loans. As the market gets more competitive, more loan programs will be offered to help buyers afford properties with the decreased affordability. If you look at the amortization schedule on most loans, you’re mostly paying interest for the first three to four years of a loan anyway. You would also always have the option to pay down your principal by paying a little extra every month.
The bottom line is that the market is changing. Whether prices continue climbing, level out, or fall, homeownership is still a goal for many people. It’s our job to help buyers find a way to buy regardless of the market. If you’re looking at the 30-year rates and thinking you can’t afford a property, talk to your lender and consider different programs that can help you achieve your goal of homeownership.
If you need a referral to an amazing lender or want a free, private, no-obligation consultation with us about what buying is like, please call or email us. Also, if you have any video ideas that you’d like me to cover in the future, send those my way as well. I’d love to hear from you.