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Homebuyers are finding ways to remove the sting of rising mortgage rates

Mortgage rates have been at their highest level in more than a decade. Homebuyers are fighting back.

More borrowers are paying fees to lower their interest rates and making higher payouts to lower the amount they need to finance, lenders and real estate agents say. People who buy homes under construction choose to lock in today’s prices instead of risking even higher later.

And more homebuyers are considering lower interest rate mortgages in their early years. Applications for adjustable-rate loans have doubled in the last three months, according to the Danish Mortgage Credit Council.

For most of 2020 and 2021, ultra-low mortgage rates helped Americans offset a sharp rise in house prices. The average interest rate on a 30-year fixed mortgage fell for the first time to below 3% in July 2020, before bottoming out at 2.65% in early 2021.

Everything changed this year. The Federal Reserve’s withdrawal from the mortgage bond market has helped raise mortgage rates close to 2 percentage points since early January, their steepest rise in decades. And they are likely to rise even more if the Fed continues to raise its benchmark rate during the year, as expected.

Potential buyers, who had been offered prices well below 4% when they started their search, now face prices closer to 6% than 5%. They struggle to adapt.

“It’s a bit like giving a toddler sugar for a while and then taking it away,” said Ralph McLaughlin, chief economist at Kukun, a real estate data firm. “They want to know if it’s being taken away forever and if they can live on things that are not sugar.”

More home buyers are choosing to pay fees to ensure lower prices in the form of rate-lock deals and discount points. A borrower can buy points at a rate of 1% of the value of the mortgage; each point lowers the rate by a fraction of a percentage point.

Borrowers paid an average of $ 3,134 in rebate points and cost of borrowing costs in April, according to estimates from the National Association of Realtors. This is 31% higher than the year before.

Paul Egbele was quoted at a price close to 2.5% last year when he entered the market. But the completion of Red Oak, Texas, home he expected to close last fall, was delayed until May.

He set a 3.5% rate in February, just before interest rates began to rise sharply. After the 60-day lock expired in April, he paid his lender, JPMorgan Chase & Co., about $ 1,700 to extend it until early May.

Sir. Egbele, who runs an online shoe sales business, also chose to pay around $ 4,600 for discount points to reduce his rate to 3.25%.

His monthly mortgage repayments are about $ 500 lower than they would have been if he had been burdened with today’s average interest rate of over 5%.

“I would still be able to afford the payments, but I would have been annoyed,” Mr Egbele said.

At the mortgage bank Neat Loans, about 75% of customers chose to pay for discount points in the first quarter, compared to less than 20% a year ago.

“They kind of take their medication and make a one-time payment to get back to where things were 30 days ago,” said Tom Furey, co-founder of Boulder, Colo.-based company.

Jared Hansen, a real estate agent in Salt Lake County, Utah, said higher prices have pushed about 15 potential clients out of the market this year. Some of those who can still afford to buy are looking at mortgages with lower introductory rates that will be reset in five, seven or 10 years.

Average interest rates on adjustable rate mortgages last week ranged from 3.69% to 5.03%, depending on the loan terms, according to The website’s average interest rate on a 30-year fixed-rate mortgage was 5.22% over the same period.

With the average 30-year mortgage rate rising to 5%, home ownership may now be out of reach for millions more Americans. WSJ’s Dion Rabouin explains the impact on potential buyers, sellers and the housing market. Illustration: Adele Morgan

Today’s ARMs are different from those that became hugely popular before the financial crisis of 2008. Thereafter, ARMs attracted borrowers with reduced interest rates that skyrocketed after a year or two, burdening homeowners with payments that they had difficulty making. pay. At their peak in 2005, adjustable-rate loans accounted for close to 50% of all mortgages issued, according to the Urban Institute.

“They were just basically not regulated,” said Guy Cecala, CEO of Inside Mortgage Finance.

Post-crisis rules tightened borrower protection. Lenders can no longer offer short-term teaser rates, and there are limits to how much rates can increase. To qualify, applicants must be able to afford mortgage repayments at rates that are significantly above the starting rate. ARMS almost disappeared; in January, they were only 1.7% of new mortgages, according to the Urban Institute.

Variable rate mortgages still involve risks: If a borrower is unable to sell or refinance as planned before a possible rate hike, monthly payments can eat up a much larger portion of the income.

Monthly mortgage repayments are already at their lowest level since August 2008, according to data from the Federal Reserve Bank of Atlanta. A median U.S. household needed 34.9% of its income to cover payments on a median price home in February. This is an increase from 29.2% a year earlier.

Two months ago, Alexia Martin’s mortgage lender said she and her boyfriend qualified for a 3.5% interest rate. But the home they are building in Charlotte, NC will not be ready until September, when they expect prices to rise.

After seeing prices rise steadily over the past two months, the pair decided to pay an interest rate lockout of $ 4,500 to secure a 5.5% rate at the end of April.

“I do not like 5.5%, but I’m fine with it because I know they will be higher later,” Ms. Martin.

Write to Orla McCaffrey at

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