Mortgage rates over 7% but going in the right direction

Yes, mortgage interest rates are still ridiculously high but they are going in the right direction. Just because your parents had to pay 8%, or 9% or more doesn’t mean 7.29% is a deal. Houses are proportionally more expensive today than they were in the 1980s.  Houses have gone up by 310% since 1980. Wages have gone up about 17.5% since 1980.

If a lender or a real estate agent suggests that home buyers are dating the mortgage but marrying the house just walk away. It costs money to refinance and if housing prices level out or go down home buyers wishing to refinance may find themselves with no equity, or worse.

Mortgage rate chart Nov 2023
Mortgage interest rates

Cash buyers can take advantage of softer prices during the holidays and fewer buyers to compete with.

Be aware of “plunging” interest rates

Coins, moneyYes, it is true after going way up, mortgage interest rates have started to come down. The word “Recession” is appearing in the news again.

“Mortgage News Daily’s lender survey showed rates on 30-year fixed-rate mortgages falling 15 basis points Friday, to 7.36 percent, down 67 basis points from a 2023 high of 8.03 percent registered on Oct. 19.”

That is a significant drop but still much higher than low but also much better than way too high.



Mortgage Interest Rates are news worthy

We have another record high for the last twenty years or so. Current rates are higher than they have been at any time in my 22-year career. Be very cautious. You might not be able to “date the rate” and “Marry the house” as some Realtors are suggesting.

Also, check out the mortgage amortization chart I published last week.

Yes, homeownership is important but if it is going to lead to poverty don’t do it.

Mortgage Rates October 2023
Mortgage interest rates October 2023

Interest rate increases seem to be the only tool the Federal Reserve has for dealing with inflation. It doesn’t seem to be working.

Short term home owners help banks

For some owning a house is a short-term kind of thing. When a mortgage is involved short term home ownership is a win for lenders. The interest on mortgages is front-loaded making interest payments the highest in the first month.

In fact, on a 7% 30-year mortgage with a 10% downpayment, it takes about 20 years before the monthly interest payment is lower than the monthly principal payment.

If the house is sold during the first five years of the mortgage the lender makes a lot of money. If someone else buys the house and gives a 30-year mortgage the lender makes even more money.

I support home ownership wholeheartedly but I often discourage home buyers who believe they will need to sell in a few years. Homeownership, or should I say mortgage ownership is more of a long-term kind of thing.

amortization chart
Amortization chart

Yes, interest rates matter.  In the example above the borrower pays over 76,000 in interest during the first five years and $13,203 in principle. Sure home prices are rising and the buyer will have some equity after five years but they also had closing costs on the loan, a down payment and there will be closing costs and other expenses related to selling the house.

Record breaking mortgage rates

The 30-year fixed-rate mortgage averaged 7.09% as of Aug. 17, according to new data from Freddie Mac’s  Primary Mortgage Market Survey. Last week, this mortgage averaged 6.96%, while one year ago it averaged 5.13%. The current level is the highest in more than 20 years.

Some have suggested that there may be yet another rate hike this year. I sure hope not. So far higher interest rates have not discouraged home buyers as much as home sellers who are staying put.