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Interest Rates Part 2: Unlocking the Secrets of Lower Interest Rates
Dated: January 16 2024
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.
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.
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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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