5 strategies for combatting increasing interest rates
If there is one thing I know about real estate for sure, it is that interest rates keep us all on our toes! And this reality is again proving true right now: interest rates are unpredictably increasing, and buyers are panicking. I totally get it! Without the full story, and all of the available options, it sounds like a bad situation. But fear not! Today I am sharing five strategies for how to stay calm and competitive amidst this uncertain situation.
Consider buying down your interest rate: Definitely talk to your lender about this one in detail (or we can make an introduction), but here is a quick overview: to lower/buy down an interest rate, the borrower pays discount points/mortgage points at closing. As a result, the overall interest rate of the loan decreases. The cost of one point is dependent on the borrower and the amount they are borrowing, and it is also important to figure out your break even point, which is essentially the cost of points / monthly savings. Further information is available here.
Lock and Shop: Read a full overview of this product that we outlined here. Buyers lock in the current interest rate without an address, then shop for 30 days with their locked in rate. This is a great option for our current market.
Consider an Adjustable Rate Mortgage: On average, Chicagoans stay in their home 3-5 years. An Adjustable Rate Mortgage can be a great option because typically the initial interest rate (which holds constant for 5, 10, 15 years) is lower than a fixed rate.
Look for “deals”: Most Chicagoland buyers are still looking for move in-ready properties. Consider going against the grain and looking for something that needs work since these properties are typically not seeing as much attention for buyers. By spending less your principle will also be lower.
Remember a historical perspective: If you talk to anyone who bought a home in the 90s, they will tell you their rate was right around 15%! If you plan to stay in your home for more than a few years, I wouldn’t worry too much about where the rates are now.
Are increasing interest rates ideal for a buyer? Probably not, you do have a lot of really solid options for ways forward. The most important piece of the puzzle is clearly working with a creative lender! Especially this year, I have seen such a difference between transactions with strong vendors and not. If you would like a referral, we have a short list of Chicagoland’s best, so please reach out!
