Interest Rates Are Important
We are now within 60 days of closing on the investment property, assuming no issues. That means that after being under contract for about six months, we were finally able to lock in our interest rate. When we started this back in January, we were at a 4.99% interest rate. Keep in mind that investment properties are always at a higher rate than a primary residence. Of course, that was before the FED started raising rates.
The FED started the rate hikes back in February and they have continued through the year. They also made it so that second home buyers get the same rates as investors. Not really a thing that matters for us, but it is an interesting note. There should be getting another increase this week or next week as well. I truly feel for anyone working in the mortgage industry because this has been a rough year.
So, we were able to lock in finally yesterday. After all these months of interest hikes, we went from a 4.99% interest rate to a 7.5% interest rate. And that’s with us paying to keep the rate down. It could have been worse in the 8%. Our loan is weird since it is a portfolio loan vs a normal investor loan. So normal investor loans should be getting a better rate than what we are. I have shopped around to other portfolio loans and it’s the same with them as well so this is life now. 2.51% higher than six months ago. For those who are curious, it’s an increase of $375 in the monthly payment. Goodbye $375 profit.
Does this change anything for us? Nope. It just sucks. The price of the home now is still well over what we bought it for which is great. Worst-case scenario, we would rent it for a year and then sell it depending on the way the world works. Our goal is to keep it as a rental though.
So yeah. Interest rates are important. They matter. A lot. The amount of home you can afford is definitely lower than at the beginning of the year. A $300K mortgage at 3.5% was $1348 a month in principal and interest. The same mortgage is $1704 with a 5.5% interest rate. Even with pricing coming down, the current interest rates are still costing you more money than a higher-priced home at a lower interest rate. A $250K mortgage at 5.5% is $1420 in principal and interest. Lower price, yet higher monthly payment than a home that was 50K more at the start of the year. So, unless you are paying cash for a home, you are worse off now than you were before.
The ironic part of this is that the FED is raising interest rates to counter the rising pricing of homes. Pricing is coming/has come down in a lot of areas, but the homes cost more than they did before. In my area, some homes have come down about $30-40K, but as we just saw, that is just a cheaper, more expensive home.
If you are buying a home during these uNpReCeDeNtEd TiMeS (I truly hate those two words at this point), I feel for you. And it’s going to get worse before it gets better.
Feature Photo by Randy Smith on Unsplash