Interest Rates Part 2: Unlocking the Secrets of Lower Interest Rates

Dated: January 16 2024

Views: 185

Interest rates—strategies to lower them, and how to navigate them.

Welcome back to our series on interest rates! In part two, we're diving into a question that's been on many minds: "What can I do to lower my interest rate?"

The second most common question we receive is, "When will interest rates get back down to 4%?" It's a valid concern, but the answer is a bit complex. Interest rates are influenced by various factors, including the economy and inflation.

We keep a close eye on the Federal Reserve's actions, as their mandate revolves around managing inflation and employment. Signs of inflation decreasing and employment softening may impact interest rates. However, expecting a return to 4% rates, like those seen during the pandemic, might be overly optimistic.

While the pandemic brought historically low rates, achieving 4% rates again might require extraordinary circumstances. Such low rates could signal more significant economic issues, which is not ideal.

Instead of aiming for 4%, it's essential to recognize that average interest rates have generally hovered above 5% over the long term. Historically, anything under 6% is considered a favorable interest rate.

Now, let's address a common question: "Can I buy down my rates to secure a lower interest rate than the average?" The answer is yes, but it involves prepaying interest to investors to secure a lower rate.

“While the allure of 4% interest rates may persist, it's crucial to adapt to the current interest rate landscape.”

Here's the catch: You should consider how long you plan to keep that interest rate. Calculating the break-even point is crucial. If you anticipate holding the property or loan for longer than the break-even period, it makes sense to buy down the rate.

However, if your ownership horizon is shorter, it may not be cost-effective. It's important to weigh the upfront cost against the long-term savings.

Additionally, you can explore the option of seller contributions. This involves having the seller contribute a percentage of the purchase price towards your rate buy-down. This approach can help buyers qualify for a slightly higher loan amount, making it a valuable strategy.

Bear in mind that there are limitations and lender-specific requirements when it comes to seller contributions, so it's essential to consult with a professional to determine the best approach for your situation.

While the allure of 4% interest rates may persist, it's crucial to adapt to the current interest rate landscape. By understanding the factors at play and exploring rate buy-downs and seller contributions, you can make informed decisions about your interest rate and secure a favorable deal.

If you have questions about your real estate goals, call or email Rich Waller. You can also visit his site by clicking HERE.


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Taj Richardson

Every day my goal is to provide the best service to my clients that I can. I want to make sure they get the most out of their real estate experience. I have been in the real estate business since 2006....

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