Rates and temporary, houses are permanent
Rates are temporary, houses are permanent
I’ve found myself saying this a lot lately, and the more I do the more it becomes apparent that this needs to be shared. The house you buy is where you make memories and raise children and cook your meals and park your car, and is clearly much more important than the rate you end up paying for a home.
Did you know?
The average life of a home loan in the United States is ~5 years, and the average homeowner spends ~13.2 years in their home.
Using the above information, we can immediately discern that on average, a homeowner will complete ~2.6 loans on any home they live in. The reasons for this are numerous, but the main reasons people refinance their home are lowering monthly housing payments or debt consolidation via cash-out refinance. Since this is the case, we should be expecting that over the course of the time you own your home you will very likely refinance the mortgage, and more so you should even be planning to.
As the market adjusts and interest rates continue to climb, the housing market is beginning to finally cool off. Certainly no one wants to pay double digit interest on their home (like the 1980's), but if the price of the homes they are looking at stay more reasonable, then the advantage is to that of the buyer who can purchase it now. Once they are in the home it is up to them and their lender to monitor rates, and once the opportunity comes they can refinance to lower their payments. Here is a quick example:
2021 price $500,000
payment* ~$2428
2022 price $460,000
payment** ~$2781
While the initial payment is higher today, you are paying significantly less on the home overall which has big advantages, and now when you refinance in the future you also finance less. In this example, if rates just got back down to the 2021 levels again, you could refinance your payment to ~$2179***
This is a great example of how short-term costs can become long term gains, by taking advantage of movement in the market and keeping in contact with your lender. Your rate is always temporary, but your house is permanent, so plan ahead and take advantage!
*80% LTV 740 credit rate 3.99, estimated taxes and insurance included
** 80% LTV 740 credit rate 6.625 estimated taxes and insurance included
*** 80% LTV 740 credit rate 3.99 estimated taxes and insurance included
