What is your rate today? Well, in any market the answer is, “It Depends.” Every prospective borrower is different. I cannot say enough a rate quote should never have a marketing approach. Dangling the lowest rate opportunity to a borrower often presents a false premise for rate expectation. However, the lowest rates do get the phone to ring. I do not make a practice of advertising rates. This is because an optimal financing package will factor in the individual customer, transaction, and loan details. A key focus now is the higher rate market. So how do lenders need to navigate the higher rates to offer compelling financing? Again, the answer is, “It Depends.”
Most consumers are versed in variables driving rates. Interest rates change daily, are dependent on credit score, or maybe higher for investment and second home use. No matter the context of financing, there is a strategy in lending. Many prospective buyers in the market prepared to purchase, referencing lower rates and lower resulting payments. The low rates of 2020 and 2021 are no longer. Of course, this presents a challenge. Rather than look back, we remain focused on making the best of the current circumstances. How is this achieved? Prospective buyers must take the time to talk to a professional and find their “Custom Fit” financing solution.
The New Normal of 2022 rates means we need to reimagine our strategy. Rates of 2020 and 2021 did not warrant paying costs or “points” to reduce interest carry. Looking at 1-1.5% increases in mortgage rates, this is a material change for those who have been looking to finance a new home. If a buyer has a target payment, the immediate thought may be more money down. But if the added down payment is not an option, is there an alternative? Yes!
Quick example. I recently consulted with first-time buyers who saw their rent increase. They were already considering a home purchase in the $600k range. They have 10-15% to put down. However, the resulting cost/mo. did not align with their target payment. I modeled numbers at 10, 15, and 20% down. We realized on a longer term $30k would lower their payment by about $200/mo. We then looked at the option for them to put down 10% and pay to buy down the rate. We realized they could pay much less in a discount to buy down the rate and create the same monthly payment. This scenario is just one that illustrates the custom-fit approach. Not everyone has the means to put down enough to reach that payment goal. Paying the discount points is not for everyone. Therefore we must re-think the strategy for each prospective buyer. And that strategy will change as the rate markets shift. I have always consulted with my clients in this way. However, I strongly believe there is even more value in this approach today.
Let’s remain positive. Focus on the variables we can control. Be prepared and seek the personalized guidance you deserve.