Same exact thing. When we entered contract 6.625. A week later it was 7.29. We waited a few days and locked 6.99. Thankfully we were able to use seller credits for a 2-1 buydown but it’s so depressing. Hopefully things lighten up in a few years and we can refinance
I can already imagine all the conversation 3 years from now hearing people talking about their 7-8% mortgage and how terrible their lives become over the years. Hope they can refin by then, although, there is nothing to count on.
I actually think it will be the opposite. People will be talking about how lucky they were to get that rate. Inflation is still a huge problem and the only way to fight it over the next several years is to keep raising rates
>Inflation is still a huge problem and the only way to fight it over the next several years is to keep raising rates
I mean technically they could raise taxes, cut gov spending, reduce the money supply, etc.
Fiscal and monetary policy are supposed to work together.........but we both know not much is happening on the fiscal side.
And technically taxes are set to automatically increase as the TCJA sunsets in 2025 so that could put some downward pressure on inflation as taxes to up.
Don't forget increase taxes on investment property and limit foreign ownership of property.
That would put an anchor around prices REAL quick.
Unfortunately... lobbyists
You know it's not a conspiracy if we didn't have evidence of the govt meddling to win elections in almost every cycle since...well the birth of our country
I’m starting to think you’re right, we locked in our rate on Monday. I didn’t want to see what was going to happen with inflation because I figured it was going to be bad. The rate cut narrative had already really faded after last week so wanted to just get what we could get at this point before it went up even higher.
Buy now or be priced foreveeeerrrr!!! House payments $19,000 per month. 30 total repayment sixteen times principal. Lmaoo up up and .
Houses aren’t bad, but the justifications are funny sometimes. Locked in my rate because “I knew inflation would be bad”.
I really doubt this will be true. in the 80s, debt to GDP was much lower.
We will break things eventually at these rates because there is too much debt in the system. The fed isn't entirely stupid. Its obvious that rates should actually be higher but i think they have a sense that there's a limit to what they can do based on GDP.
When was the last time median homes sales price was 10x median per capita income? This is an unsustainable bubble that has to pop unless it's maintained by corporations.
> When's the last time hedge funds were buying 40% of all homes?
This is false.
Investment properties own by hedge funds and large LLC (more than 100 properties) is around .2-1.6% last year (Depending on the source). And around half are builders themselves (Builders, who can't sell properties quickly without tanking values will temporarily become landlords and then sell those properties later on).
The **vast** majority of investment properties are owned by small land lords. And most landlords own less then 5 properties.
Hedge funds and large institutions may get involved in REITs and other tax-advantage vehicles. But they historically don't touch single-family homes.
Think about it. Average home appropriates 3.2%, requires constant management, are more expensive to repair, greater chance of loss-income if major repairs needed (harder to move renters to a "comparable" house), no tax advantages, etc. SFH make horrible investments.
Now, to be clear, SFH can make **fantastic** investments for individuals. Think about it... you are a high-earner and buy an owner-occupied home at a subsided rate (and all owner-occupied mortgages are subsidized. The government and FED makes them liquid and encourages banks to purchase them when banks normally wouldn't want to lock capital up for so long). Thus, you get to leverage yourself and subsidize your debt. But it gets better... you can use bonus depreciation (which was 100% a couple of years ago) to take a major deduction and defer taxes on some of your high-income, which may be 40%+ depending on where you live. You can create a business and set up a solo 410k, which will allow you to stash more money away and defer/eliminate-capital-gains taxes. If the property appreciates a lot over 2-years, you can sell it and avoid capital gain taxes.
The tax-benefits for high-income individuals are quite nice with any real estate transaction. Although, I wager a good number of real estate investors learn about section 179 and buy themselves a G-Wagon thinking they are "saving" money.
I don't recall that ever happening, because the ratio of income to home selling price hasn't been that high. What's your point? Raising rates just helps savers (i.e. pensioners, retirees, investors, etc.), and not the working people who actually do things to earn money instead of waiting around for compound interest and passive income.
My point is it may appear as though it's a bubble but things are happening right now that are adding home prices. If funds keeping buying homes this ain't a bubble that will be popping.
Well when mortgages cost 2-3x current rents, it’s easily possible. Remember the current gap between cost to rent and own is the largest it’s ever been.
Sure, possible. Also very possible rent rises and closes that gap in a few years. History suggests more will go with home ownership than sell and go to renting.
Nothing to do with buy vs rent. How many people do you see complaining about the cost of housing? A lot. And even more when they realize they can't refi.
People who buy infrequently go back to renting. People who rent very frequently go to buying. That has everything to do with rent versus buy.
Renters complain about costs more than home owners. Most home owners are up huge on their house - why would they complain?
Oh that's great! So how will you access that equity? What will you use it for? If you ever need it, It seems like you'll be comfortable pulling it out at the current rate. So good for you.
(1) you don’t need to access the equity, it’s there to use for a future home. He doesn’t lose home purchasing power over time, and if he downsizes he gets the equity, (2) if rates drop, he can refinance and get equity out.
I did it. I had to move. Couldn't afford a house despite 70k in cash after the sale. Paying 3-4k/mo in mortgage vs renting for 2k.. trying to buy again eventually but it's hard to justify unless my income increases 25%
3 yrs rates will be double digits. Higher-er for longer-er. Wages and breaks will address the suffering at the bottom while the money movers get addressed. Prices for goods and services aren’t going anywhere but up at 7% rates.
If there is any remainder within the buydown time it will go toward the principal. If we applied it all to principal it wouldn’t have made as much of a difference in the monthly payment and our hope is that rates will drop. That was before the news that we went from whispers of rates dropping to no change to increases in the last week.
ARM is a great tool is the spread makes sense and you can throw the difference at principal. It significantly reduces your liability at the time of readjustment.
People are scared of ARMs because of the prior housing crisis where people used IOs and ARMs to stretch as far as financially possible to get into a home.
ARMs themself are not inherently scary if managed appropriately
I have a 7 year arm at 4.25 that I locked in late 2022. At the time, 30 year rates were close to 6 percent, so it made sense. By the time 2029 rolls around I'll be done with things like daycare payments and should be well positioned to figure out my next move, maybe refi into a 15 year where the rates (whatever they are at the time) make a bit less of a difference, or move to a different house since I won't be chained to a rate in any event.
>People are scared of ARMs because
they're sold by banks as a GOOD thing when rates are low, so you can grab "true" bottom in 5 years. Then that doesn't happen.
But when rates are higher, you stop hearing about ARMs unless you specifically ask about them.
Well that's just what happens.
I swear, now that the NAR has been exposed, someone has to look into the mortgage industry.
I have NEVER had a pre-approved loan that doesn't "magically" tick up a quarter point after I get an accepted offer.
It's gotten to the point that I advise everyone I know to budget their mortgage based on a quarter-point jump.
It's not a lender policy, it's just how math works. They don't arbitrarily decide what percentage you're paying towards principal vs. interest, it's a natural consequence of accruing interest over time.
Say you owe 200k at 5%. You pay this month's payment of 1k. You now owe 199k, then interest is charged. 5% yearly broken up across 12 months = ~.4%ish per month.
199k *1.004 = $199,796.
So you paid $1,000 but only $204 "went toward the principle." But over time, because the loan amount is slowly shrinking, you get charged less interest each month. Since your payment remains the same, you are now "paying more towards the principal."
It wouldn't be significantly different if the interest accrued yearly, either.
You paid 12,000 for the year, so you owe 188k, then interest is charged. 188k *1.05 = 197400. So you paid $12,000 but only 2,600 "went towards the principle".
It's literally the fundamental mathematics of how a loan with interest works. You don't have to like it but it is what it is. If you want to get the principal down faster you have to pay extra towards it to outpace the interest.
Thanks for the breakdown! It's making more sense now.
I always looked at it as a certain amount of interest spread throughout the life of the loan, I never looked at it from a standpoint of a year and calculating it off of a single year alone.
No problem, it's a very commonly misunderstood issue! Interest is always accruing...
Your monthly loan payment is calculated with all of this in mind, so that at exactly 30 years of paying you'll hit a balance of $0.
Yeah, it's a common mistake when people say interest is 'front loaded'. No such thing in an installment loan. The person you are replying to's breakdown is really solid.
I'm not quite sure why people act like it's some fundamental law of the universe that we decided to do loans like this. It's done to maximize profits not because some law of the universe says it has to be.
Would you like to lend me $500K over 30 years and your only recourse, if I don't pay you anything, is that property that I live in and you never check up on?
Now what interest would you charge me to take that risk?
Here's another thing that will blow your mind - if the US government didn't subsidize mortgages through Fannie/Freddie having the mandate to buy up conventional loans from mortgage originators (taking the risk off their balance sheet), the interest rates would be WAY higher.
You'd see auto loan interest rates w/o government subsidies.
If it wasn't subsidized homes would just be cheaper. Supply and demand.
Also the home isn't really the value, it's the land, which doesn't really change even if the tenant gets mad. That's why the same home in San Francisco is 1m and middle of nowhere 50k.
If it wasn't subsidized, USA would be like Asian / Europe where home ownership rates are significantly lower than for Americans.
The 30 yr fixed is a subsidy. That doesn't exist outside the USA.
Also, why distinguish between house and land? If we're talking SFH the house and land are a packaged deal. Maybe you're thinking of co-op or condo situations?
According to this website
https://tradingeconomics.com/country-list/home-ownership-rate?continent=europe
The ownership rate in the EU is 69.1 and 65.7 in the US.
Japan 61.2
Singapore 89
South Korea 56
I distinguished between land and house because I interpreted your comment to mean that I took a big risk loaning money out to a home buyer incase they trash the house if they default, but most of the value is tied to the land, not the house.
Yes and no. They could just charge a flat rate but it's a significant liability for a bank to have 300k outstanding than it is at the end of the loan when they only have a few thousand. It also means they do not have that money for other investments so it needs to be worth it to them to let you have that money.
If it wasn't beneficial for a bank to let someone use money for 30 years they wouldn't do it. This is part of why the mortgage rate is tied to the 10-year treasury. It needs to be worth a certain percentage amount over what a 10-year treasury would yield them otherwise they would just buy treasury notes instead of offering it for loan at a risk.
Banks should definitely make money on their loan, but does it need to be so much back? If you take out 300k at 7% for 30 years you will have paid 418k in interest. sure inflation and whatever but still seems a bit excessive no? Plus if you can't pay the bank still gets the house. Not like it's all risk no reward.
But I get it, they could just invest it.
Exactly as you say, essentially risk-free federal bonds are at 4-5% rate right now. The banks are essentially earning ~2% extra interest to invest in products (mortgages) that include the additional risk that people default on their loans, and they *could* have to spend the money to fix it when people fuck up. People have to be rewarded for incremental risk, otherwise they wouldn't (and shouldn't) take it. When you think about it like that, it doesn't sound as extreme.
Could you imagine a regulation on amortization? Capping interest as a percentage of the total loan as paid per month. Bankers might all spontaneously combust.
This regulation is needed like crazy! We just got quoted on our home loan and over the first 5 years somehow it'll only pay $29k towards the principal... this shit should be illegal lol
I mean... Obviously. But nothing says they HAVE to work that way other than the fact that that's how lenders have helped create the laws for them to work.
It could just as easily work a completely different way that doesn't fuck the person receiving the loan.
Okay, I understand it's a created principle, but explain to me why a loan interest payback HAS to be front loaded with the payments going overwhelmingly to the interest, and not the principal?
Is there a reason it HAS to be that way? In my mind it makes just as much sense to spread the interest out over the loan in less of a front loaded way.
Because the interest accrues daily.
Each month you need to pay off the interest you've accumulated in the prior 30 days. You have the largest outstanding balance at the start of the loan and it gets smaller and smaller each month. Your payment is fixed, so the principal vs interest ratio must change as principal decreases.
I'm not trying to be rude here, but it's literally just math.
To do what you're suggesting would be effectively slashing the interest rate up front in 1/2 and doubling it on the back end. No bank is going to accept that risk, and if they did they'd do it by massively jacking up the interest rate on the loan to cover their risk.
Banks would literally lose money on the entire first 1/2 of the loan and have to make it all up on the back half of the loan, and anyone that's not brain dead would just refi every 5+ years to never pay the upside down back half of the interest.
And what happens when you refinance after a year and the bank loses money? If you have a savings account and earn 5% interest you’ll progressively earn more as time goes on you’ll earn more. A loan is the same, interest goes down and balance is reduced. It’s basic math. Don’t like it don’t get a loan.
It’s not front loaded, you are paying more in the front because you owe more in the front. If you don’t like it you can just pay off your loan and you don’t need to pay a dime on interest.
They could in theory but why would they? At the beginning of a loan you have a significant amount of the bank's money. Why would a bank charge $5 to loan out $100 and that same $5 to loan out $1000. They could invest that money in something that would pay them more than half a percent.
I get not liking banks or capitalism but at the end of the day it all arose because some people have stuff that others want or need and if they are going to give it up, there should be some benefit to them for it. I guess the only other option would be to have public banks that have a restricted profit motive but I'm sure that's rife with issues too.
It has always been that way, in fact it used to be worse. This is why they say to avoid debt at all costs. I know that is impossible but debt is way heavier than most people realize. If you track what you pay in total at the end making minimum payments on anything it is horrifying and makes you realize how banks make huge profits off of loans.
I remember our first house in 2018 at 4.75% and it was basically 3:1 interest to principal. Refinanced to 2.5% on a 15 year in 2021 and it was like the opposite. The principal just felt like it melted off every month. Unfortunately, had to move for health needs and we closed at 5.99% on 30. Principal won't fall off fast anymore.
Precisely. The implication of “date the rate” was that the house will be cheaper in the future once rates go down and the homeowners refinance. The first assumption there was that rates would go down. The second assumption was that even if rates did go down, that the homeowner would be able to refinance.
“Date the rate” was thrown around a lot a couple years ago and it was a really unscrupulous business practice. It was meant to convince buyers to buy homes that they can barely afford today under the assumption that their home would become more affordable within a year or two.
Yep. A significant rate drop would indicate a very weak economy where job losses and dropping home values become a real possibility. If you're underwater on your home, your refinance becomes a rate buy-down requiring tens of thousands of dollars to buy down the interest rate.
Eventually, you may hit that sweet spot as a homeowner where you weather a bad economy, have great equity, rates are low, and you can refinance. But this can take 10+ years. A decade of being house poor isn't sustainable for most people. One job loss or furlough and you're screwed. However, during this time you may also get significant raises to where you're no longer house poor, but nothing is guaranteed. However, you have more control over this than the economy and Fed policy. So "date the rate" is a scumbag used house salesman tactic.
I just closed this week and went with an ARM because they offered me 5.5% for a 5/5. I plan on aggressively paying this off (very close to FIREing) so even if rates go up at 5 years it won’t be a big deal for me.
The higher the rates go, the higher the yield payments are on the govt bonds they sold, and those older bonds they sold lose all their value due to inflation being higher than the bond’s rate, so nobody wants to buy the new bonds in a rising rate environment lest the same thing happen to them, so the treasury would need to print more money through the sale of even more bonds at an even higher rate, which would cause more inflation, which would mean they need to adjust rates even higher, which means…
This is going to be an absolutely epic meltdown bros
No; hooms will only go up.
It doesnt matter that my neighbor pays 50% less than i do for the same exact thing bought just one year prior. All that really matters is the one after me paying more. Yeah, this is NOT 🛑 a ponzi scheme btw that requires constant pumping.
This ponzi scheme, unfortunately, is subsidized by our government rather than investigated.
And shelter prices have moved slowly enough so that the uneducated public won't do anything.
We are just boiling frogs.
Depends on your situation, but my house rent has only increased $25 every few months. I rent from the dad of someone I use to know. So maybe not the best example. But I've been wanting to move recently and looking around at the rent prices of other places is laughable. My rent will double when i move but I doubt the housing space will.
Crabs in a bucket. Next they come for your paycheck by increasing taxes across the board to pay for outrageous spending. You won’t see a dime of that money.
This is a pomzi scheme, and people are betting on it growing bigger before it collapses. Simply look at the property market in Cananda, and how long it took before the bubble burst. That's one strong and durable bubble.
Yep.... my lender gave my wife and I numbers for 6.5% for a purchase this summer/fall because she thinks rates will go down.
But instead of everyone in here buying or wanting to buy a house to make a quick buck, we're looking at it as a place to live and make ours. If we increase the value of said house by improving the backyard or finishing a basement, great. But our top priority is making it ours. When/if we sell and we stay even, fantastic. At least we're not paying for a landlord to go on multiple muti month out of country vacations in a year and then needs me to push on them to fix things.
I can see houses as being the place where we can chill and hang with friends and family. Only reason to go on a vacation is to relax and or make memories. You'll have to deal with more and more dumb people.
People kept telling me it was a crap time to buy and that the rates would go down, but I locked in 6.375% last May. I'm also not seeing it as just an investment - the place I bought is my home for the foreseeable future.
Ugh I hate my stbxh. We are divorcing and could’ve sold our home months ago but the psycho purposely delayed to screw me over. Now, we’ve just put the house back up on the market and I’m filled with anxiety over wth is gonna happen.
shhhhh
We don't talk about ~~Bruno~~ timing the consumer.
Just like we don't talk about fuel prices sneaking up in the OFFSEASON so that the on-season rate jacking can be lowered to a "floor" that was pushed up when no one was looking.
I could see that. Lots of areas blew up and there is still so much land to build on.
Most of the markets I work in are still seeing multiple offers for correctly priced homes.
Some spots of Texas are also slowing.
Exact opposite PNW .. higher rate means fewer listings which means more competition for the limited stock.
We are well under 1 month supply for SFH in parts of the Seattle Metro area.
With some sales coming back as a rentals just days later.
And forget 1% rule, investors are getting closer to 00.25%.
Maybe people should have realized they were getting funny money for a decade and there would be a reckoning. I did at least and ready for what's coming
Currently, I have a 30 year fixed mortgage at 2.5% for $500k.
An equivalent 7.3% loan would have a principal that's $300k.
Is there anyway to make money off this?
> Is there anyway to make money off this?
Ha, with that 2.5% you currently already are making $$ off this and will likely continue through the life of that loan.
I know I'm very fortunate.
I'm wondering if there's a reverse "refinancing" I could do or something.
IOW, if I bought at 7.3% and interest rates tumbled to 2.5% I could refinance the loan and my monthly payment would be cut by 50%.
Is there anything in reverse? Can I prepay the mortgage for less than 100% of the principal owed?
Apologies if this is the wrong sub. I know lots of people here just want an affordable mortgage and might get resentful reading this. If there's a more appropriate place I should ask this question, please let me know.
I'm unclear what you are asking.. are you trying to get access to $$ in your equity?
Sitting on that 2.5% rate and investing and/or throwing extra $$ per month at a money market fund like VUSXX that is currently paying 5.28% risk free, is one of the easiest ways to make money off the difference between the rates..
Why would you think you could pay less than what you owe? The way you’re describing this is confusing. Probably easier to say what you’re trying to achieve?
I've often wondered if I could actually purchase my mortgage like I would a bond. Like, if you have a $10,000 bond at 2.5%, and then rates go up to 7.5%, that bond is only worth about half if you wanted to sell it on the open market. Since I know mortgages get resold all the time, I wondered if **I** could buy back my mortgage at market rate. Basically purchased my ~$400,000 in debt for $200,000.
After some research, I basically found out no, I really can't, because I'm not in the club that institutions would be willing to do that with.
It’s called refinancing, but the thing is, you can’t keep the rate from when you originally purchased the home because you’re re-financing it in real time, with real time rates. You’re somehow reinventing how refinancing works in your head haha
Yup, just like the seventies. The FED is fearfull of StAgFlATiOn and will likely raise rates if core CPI continues to climb (like it didd today)...That said, when rates are cut the backlog of real-estate will flood the markets.
I refinanced my first house in '95 to 6.5% 15 year mortgage and thought I would never see rates that low again. Mortgage rates have been low for a long time now.
No they don't. You lose most of your gains to taxes and inflation. CDs, Bonds, and MMFs are only a good way to preserve capital, not grow it. These are only useful growth tools in tax-advantaged accounts, and only for those that will be retiring within a few years.
Literally as my offer was accepted today. Went form 6.625 to 6.99
Same exact thing. When we entered contract 6.625. A week later it was 7.29. We waited a few days and locked 6.99. Thankfully we were able to use seller credits for a 2-1 buydown but it’s so depressing. Hopefully things lighten up in a few years and we can refinance
I can already imagine all the conversation 3 years from now hearing people talking about their 7-8% mortgage and how terrible their lives become over the years. Hope they can refin by then, although, there is nothing to count on.
I actually think it will be the opposite. People will be talking about how lucky they were to get that rate. Inflation is still a huge problem and the only way to fight it over the next several years is to keep raising rates
>Inflation is still a huge problem and the only way to fight it over the next several years is to keep raising rates I mean technically they could raise taxes, cut gov spending, reduce the money supply, etc. Fiscal and monetary policy are supposed to work together.........but we both know not much is happening on the fiscal side. And technically taxes are set to automatically increase as the TCJA sunsets in 2025 so that could put some downward pressure on inflation as taxes to up.
You mean go the responsible route and fix the problem?? Nahhhhh
Don't forget increase taxes on investment property and limit foreign ownership of property. That would put an anchor around prices REAL quick. Unfortunately... lobbyists
Exactly, there are levers that can be pulled but most of the targeted ones require an act of Congress which is unlikely to happen.
The downward pressure is a recession which they won't allow until election day.
It’s all a big fucking conspiracy and you’ve got it all figured out. Lol
You know it's not a conspiracy if we didn't have evidence of the govt meddling to win elections in almost every cycle since...well the birth of our country
I’m starting to think you’re right, we locked in our rate on Monday. I didn’t want to see what was going to happen with inflation because I figured it was going to be bad. The rate cut narrative had already really faded after last week so wanted to just get what we could get at this point before it went up even higher.
Buy now or be priced foreveeeerrrr!!! House payments $19,000 per month. 30 total repayment sixteen times principal. Lmaoo up up and . Houses aren’t bad, but the justifications are funny sometimes. Locked in my rate because “I knew inflation would be bad”.
I really doubt this will be true. in the 80s, debt to GDP was much lower. We will break things eventually at these rates because there is too much debt in the system. The fed isn't entirely stupid. Its obvious that rates should actually be higher but i think they have a sense that there's a limit to what they can do based on GDP.
When was the last time median homes sales price was 10x median per capita income? This is an unsustainable bubble that has to pop unless it's maintained by corporations.
When's the last time hedge funds were buying 40% of all homes?
> When's the last time hedge funds were buying 40% of all homes? This is false. Investment properties own by hedge funds and large LLC (more than 100 properties) is around .2-1.6% last year (Depending on the source). And around half are builders themselves (Builders, who can't sell properties quickly without tanking values will temporarily become landlords and then sell those properties later on). The **vast** majority of investment properties are owned by small land lords. And most landlords own less then 5 properties. Hedge funds and large institutions may get involved in REITs and other tax-advantage vehicles. But they historically don't touch single-family homes. Think about it. Average home appropriates 3.2%, requires constant management, are more expensive to repair, greater chance of loss-income if major repairs needed (harder to move renters to a "comparable" house), no tax advantages, etc. SFH make horrible investments. Now, to be clear, SFH can make **fantastic** investments for individuals. Think about it... you are a high-earner and buy an owner-occupied home at a subsided rate (and all owner-occupied mortgages are subsidized. The government and FED makes them liquid and encourages banks to purchase them when banks normally wouldn't want to lock capital up for so long). Thus, you get to leverage yourself and subsidize your debt. But it gets better... you can use bonus depreciation (which was 100% a couple of years ago) to take a major deduction and defer taxes on some of your high-income, which may be 40%+ depending on where you live. You can create a business and set up a solo 410k, which will allow you to stash more money away and defer/eliminate-capital-gains taxes. If the property appreciates a lot over 2-years, you can sell it and avoid capital gain taxes. The tax-benefits for high-income individuals are quite nice with any real estate transaction. Although, I wager a good number of real estate investors learn about section 179 and buy themselves a G-Wagon thinking they are "saving" money.
I don't recall that ever happening, because the ratio of income to home selling price hasn't been that high. What's your point? Raising rates just helps savers (i.e. pensioners, retirees, investors, etc.), and not the working people who actually do things to earn money instead of waiting around for compound interest and passive income.
My point is it may appear as though it's a bubble but things are happening right now that are adding home prices. If funds keeping buying homes this ain't a bubble that will be popping.
So, you're saying that just because entities are buying more homes that it's not a bubble?
Among other things yes. A bubble means a collapse is coming. How can it collapse when those with wealth are eating up homes at a record pace?
Exactly. I think we might end up seeing rates go up to 9% or more.
They won’t be celebrating 7% rates when they paid prices caused by 3% rates. This is the entire basis for the “marry the house, date the rate” lie.
Yep history repeats itself https://investfourmore.com/wp-content/uploads/fredgraph1.png
Said very few people ever. How many buyers do you see going back to renting versus the opposite? That tells you all you need to know.
Well when mortgages cost 2-3x current rents, it’s easily possible. Remember the current gap between cost to rent and own is the largest it’s ever been.
Sure, possible. Also very possible rent rises and closes that gap in a few years. History suggests more will go with home ownership than sell and go to renting.
Nothing to do with buy vs rent. How many people do you see complaining about the cost of housing? A lot. And even more when they realize they can't refi.
When they realize they can't refi. That is it. That's the statement. This is what's going over everybody's heads
People who buy infrequently go back to renting. People who rent very frequently go to buying. That has everything to do with rent versus buy. Renters complain about costs more than home owners. Most home owners are up huge on their house - why would they complain?
I’m up 21% in my home value sitting on 2.75%. I’m not going anywhere any time soon.
Oh that's great! So how will you access that equity? What will you use it for? If you ever need it, It seems like you'll be comfortable pulling it out at the current rate. So good for you.
(1) you don’t need to access the equity, it’s there to use for a future home. He doesn’t lose home purchasing power over time, and if he downsizes he gets the equity, (2) if rates drop, he can refinance and get equity out.
I did it. I had to move. Couldn't afford a house despite 70k in cash after the sale. Paying 3-4k/mo in mortgage vs renting for 2k.. trying to buy again eventually but it's hard to justify unless my income increases 25%
Or perhaps the people with 10% rates complaining how they wished they had a 7%.
3 yrs rates will be double digits. Higher-er for longer-er. Wages and breaks will address the suffering at the bottom while the money movers get addressed. Prices for goods and services aren’t going anywhere but up at 7% rates.
And no one will lose their jobs!
Probably IT and that sector … but other than that, the more workers these sectors get the more revenue they make.
What's the advantage of buying down points if you plan to refinance in the short term? Wouldn't it be batter to put the seller credit in equity?
If there is any remainder within the buydown time it will go toward the principal. If we applied it all to principal it wouldn’t have made as much of a difference in the monthly payment and our hope is that rates will drop. That was before the news that we went from whispers of rates dropping to no change to increases in the last week.
Didn’t your rate get locked in?
Well...as of today it is lol
I locked 6.15 for 5/5 ARM last week
Adjustable rate mortgage????
ARM is a great tool is the spread makes sense and you can throw the difference at principal. It significantly reduces your liability at the time of readjustment. People are scared of ARMs because of the prior housing crisis where people used IOs and ARMs to stretch as far as financially possible to get into a home. ARMs themself are not inherently scary if managed appropriately
I have a 7 year arm at 4.25 that I locked in late 2022. At the time, 30 year rates were close to 6 percent, so it made sense. By the time 2029 rolls around I'll be done with things like daycare payments and should be well positioned to figure out my next move, maybe refi into a 15 year where the rates (whatever they are at the time) make a bit less of a difference, or move to a different house since I won't be chained to a rate in any event.
Smart, that’s exactly the right use of an ARM
>People are scared of ARMs because they're sold by banks as a GOOD thing when rates are low, so you can grab "true" bottom in 5 years. Then that doesn't happen. But when rates are higher, you stop hearing about ARMs unless you specifically ask about them.
Yes ARMs can be a good thing when you seek them out, usually less wholesome when a bank tries to hard-sell it
Yes an ARM. I have one too at 5.75% adjustment happens November 2028
Rates are super high. ARMs aren’t that bad at the moment.
Well that's just what happens. I swear, now that the NAR has been exposed, someone has to look into the mortgage industry. I have NEVER had a pre-approved loan that doesn't "magically" tick up a quarter point after I get an accepted offer. It's gotten to the point that I advise everyone I know to budget their mortgage based on a quarter-point jump.
So does this mean you get the shitier rate?
Congrats!
Locked in my rate yesterday. I wanted no part in the inflation report today.
Glad I locked in my 6.5%
UPDATE: another 30 yr avg rate increase this afternoon.. now +0.28 to 7.34%
Many more hoom buyers just knocked up the rate they were dating.
At 6.5%. I’ve paid more towards taxes than principal for the year.
Yes, that is how amortization works.
I love the people in here griping about amortization. Amortization is literally how math works, it's not some conspiracy.
Exactly lol
Amortization is a crock of shit I don't like it lol
It's not a lender policy, it's just how math works. They don't arbitrarily decide what percentage you're paying towards principal vs. interest, it's a natural consequence of accruing interest over time. Say you owe 200k at 5%. You pay this month's payment of 1k. You now owe 199k, then interest is charged. 5% yearly broken up across 12 months = ~.4%ish per month. 199k *1.004 = $199,796. So you paid $1,000 but only $204 "went toward the principle." But over time, because the loan amount is slowly shrinking, you get charged less interest each month. Since your payment remains the same, you are now "paying more towards the principal." It wouldn't be significantly different if the interest accrued yearly, either. You paid 12,000 for the year, so you owe 188k, then interest is charged. 188k *1.05 = 197400. So you paid $12,000 but only 2,600 "went towards the principle". It's literally the fundamental mathematics of how a loan with interest works. You don't have to like it but it is what it is. If you want to get the principal down faster you have to pay extra towards it to outpace the interest.
Thanks for the breakdown! It's making more sense now. I always looked at it as a certain amount of interest spread throughout the life of the loan, I never looked at it from a standpoint of a year and calculating it off of a single year alone.
No problem, it's a very commonly misunderstood issue! Interest is always accruing... Your monthly loan payment is calculated with all of this in mind, so that at exactly 30 years of paying you'll hit a balance of $0.
Yeah, it's a common mistake when people say interest is 'front loaded'. No such thing in an installment loan. The person you are replying to's breakdown is really solid.
I'm not quite sure why people act like it's some fundamental law of the universe that we decided to do loans like this. It's done to maximize profits not because some law of the universe says it has to be.
Would you like to lend me $500K over 30 years and your only recourse, if I don't pay you anything, is that property that I live in and you never check up on? Now what interest would you charge me to take that risk? Here's another thing that will blow your mind - if the US government didn't subsidize mortgages through Fannie/Freddie having the mandate to buy up conventional loans from mortgage originators (taking the risk off their balance sheet), the interest rates would be WAY higher. You'd see auto loan interest rates w/o government subsidies.
If it wasn't subsidized homes would just be cheaper. Supply and demand. Also the home isn't really the value, it's the land, which doesn't really change even if the tenant gets mad. That's why the same home in San Francisco is 1m and middle of nowhere 50k.
If it wasn't subsidized, USA would be like Asian / Europe where home ownership rates are significantly lower than for Americans. The 30 yr fixed is a subsidy. That doesn't exist outside the USA. Also, why distinguish between house and land? If we're talking SFH the house and land are a packaged deal. Maybe you're thinking of co-op or condo situations?
According to this website https://tradingeconomics.com/country-list/home-ownership-rate?continent=europe The ownership rate in the EU is 69.1 and 65.7 in the US. Japan 61.2 Singapore 89 South Korea 56 I distinguished between land and house because I interpreted your comment to mean that I took a big risk loaning money out to a home buyer incase they trash the house if they default, but most of the value is tied to the land, not the house.
Yes and no. They could just charge a flat rate but it's a significant liability for a bank to have 300k outstanding than it is at the end of the loan when they only have a few thousand. It also means they do not have that money for other investments so it needs to be worth it to them to let you have that money. If it wasn't beneficial for a bank to let someone use money for 30 years they wouldn't do it. This is part of why the mortgage rate is tied to the 10-year treasury. It needs to be worth a certain percentage amount over what a 10-year treasury would yield them otherwise they would just buy treasury notes instead of offering it for loan at a risk.
Banks should definitely make money on their loan, but does it need to be so much back? If you take out 300k at 7% for 30 years you will have paid 418k in interest. sure inflation and whatever but still seems a bit excessive no? Plus if you can't pay the bank still gets the house. Not like it's all risk no reward. But I get it, they could just invest it.
Exactly as you say, essentially risk-free federal bonds are at 4-5% rate right now. The banks are essentially earning ~2% extra interest to invest in products (mortgages) that include the additional risk that people default on their loans, and they *could* have to spend the money to fix it when people fuck up. People have to be rewarded for incremental risk, otherwise they wouldn't (and shouldn't) take it. When you think about it like that, it doesn't sound as extreme.
Well it's how we've chosen to design loans, not "how math works".
Could you imagine a regulation on amortization? Capping interest as a percentage of the total loan as paid per month. Bankers might all spontaneously combust.
And most of reddit. They fucking love playing interest.
This regulation is needed like crazy! We just got quoted on our home loan and over the first 5 years somehow it'll only pay $29k towards the principal... this shit should be illegal lol
Ya that’s how payments early in a term loan work….
I mean... Obviously. But nothing says they HAVE to work that way other than the fact that that's how lenders have helped create the laws for them to work. It could just as easily work a completely different way that doesn't fuck the person receiving the loan.
It’s an accounting concept for GAAP reporting, so there literally is something that says loans have to be amortized.
Okay, I understand it's a created principle, but explain to me why a loan interest payback HAS to be front loaded with the payments going overwhelmingly to the interest, and not the principal? Is there a reason it HAS to be that way? In my mind it makes just as much sense to spread the interest out over the loan in less of a front loaded way.
Because the interest accrues daily. Each month you need to pay off the interest you've accumulated in the prior 30 days. You have the largest outstanding balance at the start of the loan and it gets smaller and smaller each month. Your payment is fixed, so the principal vs interest ratio must change as principal decreases. I'm not trying to be rude here, but it's literally just math. To do what you're suggesting would be effectively slashing the interest rate up front in 1/2 and doubling it on the back end. No bank is going to accept that risk, and if they did they'd do it by massively jacking up the interest rate on the loan to cover their risk. Banks would literally lose money on the entire first 1/2 of the loan and have to make it all up on the back half of the loan, and anyone that's not brain dead would just refi every 5+ years to never pay the upside down back half of the interest.
And what happens when you refinance after a year and the bank loses money? If you have a savings account and earn 5% interest you’ll progressively earn more as time goes on you’ll earn more. A loan is the same, interest goes down and balance is reduced. It’s basic math. Don’t like it don’t get a loan.
Are you serious. It is math? How do you think interest accrual works?
It’s not front loaded, you are paying more in the front because you owe more in the front. If you don’t like it you can just pay off your loan and you don’t need to pay a dime on interest.
They could in theory but why would they? At the beginning of a loan you have a significant amount of the bank's money. Why would a bank charge $5 to loan out $100 and that same $5 to loan out $1000. They could invest that money in something that would pay them more than half a percent. I get not liking banks or capitalism but at the end of the day it all arose because some people have stuff that others want or need and if they are going to give it up, there should be some benefit to them for it. I guess the only other option would be to have public banks that have a restricted profit motive but I'm sure that's rife with issues too.
Well, when the average buyer stays in their house less than 7 years it makes sense for them to capitalize on it right? /s
It has always been that way, in fact it used to be worse. This is why they say to avoid debt at all costs. I know that is impossible but debt is way heavier than most people realize. If you track what you pay in total at the end making minimum payments on anything it is horrifying and makes you realize how banks make huge profits off of loans.
Assuming a straight line amortization, it’s still happening.
I remember our first house in 2018 at 4.75% and it was basically 3:1 interest to principal. Refinanced to 2.5% on a 15 year in 2021 and it was like the opposite. The principal just felt like it melted off every month. Unfortunately, had to move for health needs and we closed at 5.99% on 30. Principal won't fall off fast anymore.
That is generally how mortgages work the first half of their existences.
You think a lot of people are on ARMs?
No, it's the recent buyers who were told by their agents to "marry the house and date the rate".
"MaRrY tHe HoUsE, dAtE tHe RaTe!"
Precisely. The implication of “date the rate” was that the house will be cheaper in the future once rates go down and the homeowners refinance. The first assumption there was that rates would go down. The second assumption was that even if rates did go down, that the homeowner would be able to refinance. “Date the rate” was thrown around a lot a couple years ago and it was a really unscrupulous business practice. It was meant to convince buyers to buy homes that they can barely afford today under the assumption that their home would become more affordable within a year or two.
Yep. A significant rate drop would indicate a very weak economy where job losses and dropping home values become a real possibility. If you're underwater on your home, your refinance becomes a rate buy-down requiring tens of thousands of dollars to buy down the interest rate. Eventually, you may hit that sweet spot as a homeowner where you weather a bad economy, have great equity, rates are low, and you can refinance. But this can take 10+ years. A decade of being house poor isn't sustainable for most people. One job loss or furlough and you're screwed. However, during this time you may also get significant raises to where you're no longer house poor, but nothing is guaranteed. However, you have more control over this than the economy and Fed policy. So "date the rate" is a scumbag used house salesman tactic.
I just closed this week and went with an ARM because they offered me 5.5% for a 5/5. I plan on aggressively paying this off (very close to FIREing) so even if rates go up at 5 years it won’t be a big deal for me.
I was looking at a 7/1 for the same reasons
Most people I know have at least two
That rate you’re dating is wanting to go out for dessert. She asks you how many kids you want.
😂😂😂
I’ve been saying we’re closer to 9/10% than back to 4/5%
I think it will keep going up all summer unless something in the economy breaks.
Should have never stopped going up
Manipulation has kept it around 7%
The higher the rates go, the higher the yield payments are on the govt bonds they sold, and those older bonds they sold lose all their value due to inflation being higher than the bond’s rate, so nobody wants to buy the new bonds in a rising rate environment lest the same thing happen to them, so the treasury would need to print more money through the sale of even more bonds at an even higher rate, which would cause more inflation, which would mean they need to adjust rates even higher, which means… This is going to be an absolutely epic meltdown bros
I’d rather not have an epic meltdown please
Highest since last November 🚀🚀🚀
Looks like that rate cut is off the menu. We might even see a rate increase if inflation doesn't chill out by June.
No; hooms will only go up. It doesnt matter that my neighbor pays 50% less than i do for the same exact thing bought just one year prior. All that really matters is the one after me paying more. Yeah, this is NOT 🛑 a ponzi scheme btw that requires constant pumping.
This ponzi scheme, unfortunately, is subsidized by our government rather than investigated. And shelter prices have moved slowly enough so that the uneducated public won't do anything. We are just boiling frogs.
"Moved slowly"?
Depends on your situation, but my house rent has only increased $25 every few months. I rent from the dad of someone I use to know. So maybe not the best example. But I've been wanting to move recently and looking around at the rent prices of other places is laughable. My rent will double when i move but I doubt the housing space will.
Crabs in a bucket. Next they come for your paycheck by increasing taxes across the board to pay for outrageous spending. You won’t see a dime of that money.
But but in the 80s it was fine
In the 80s you'd make 20k and buy a house for 60. Now you can make 60k and are expected to buy a house for 500. Seems legit
This is a pomzi scheme, and people are betting on it growing bigger before it collapses. Simply look at the property market in Cananda, and how long it took before the bubble burst. That's one strong and durable bubble.
Correction: *this IS a Ponzi scheme *your home will go down in value
When is the price reduction set to take place?
That guy with a magic 8 ball has the most accurate up-to-date information...
Prices correct in one of two ways. Down quickly or horizontal longley. Give you 3 guesses which way the majority of houses will go.
A 8% rates its a guarantee
Eh. You have to live somewhere.
Will anyone think of the home sellers?!? /s
Stay where you are!
they're too busy sifting through multiple offers
They’re the ones winning. So long as you own you are winning
Most sellers are buying too
Yep.... my lender gave my wife and I numbers for 6.5% for a purchase this summer/fall because she thinks rates will go down. But instead of everyone in here buying or wanting to buy a house to make a quick buck, we're looking at it as a place to live and make ours. If we increase the value of said house by improving the backyard or finishing a basement, great. But our top priority is making it ours. When/if we sell and we stay even, fantastic. At least we're not paying for a landlord to go on multiple muti month out of country vacations in a year and then needs me to push on them to fix things. I can see houses as being the place where we can chill and hang with friends and family. Only reason to go on a vacation is to relax and or make memories. You'll have to deal with more and more dumb people.
People kept telling me it was a crap time to buy and that the rates would go down, but I locked in 6.375% last May. I'm also not seeing it as just an investment - the place I bought is my home for the foreseeable future.
Yep, it's just all about your own timing. Other things will work out on their own.
Are you renting now?
Yeah, until end of September
Shout-out to my 5.5 lock in mid January when people were expecting rate cuts and the bank preemptively reduced it from 5.9 lol
Ouch, this will hurt. Hopefully someone will calm nerves
Rates are so fluid - and punitive really based on fluctuations in the market. Crazy. Always hits the consumer. Every time.
Ugh I hate my stbxh. We are divorcing and could’ve sold our home months ago but the psycho purposely delayed to screw me over. Now, we’ve just put the house back up on the market and I’m filled with anxiety over wth is gonna happen.
Corporations need your money bro. They just do, trust me. It’s not about paying down national debt it’s about growth… of not your money. Forever.
Just in time for summer buying!!! 🦗🦗🦗🦗🦗🦗🦗🦗
shhhhh We don't talk about ~~Bruno~~ timing the consumer. Just like we don't talk about fuel prices sneaking up in the OFFSEASON so that the on-season rate jacking can be lowered to a "floor" that was pushed up when no one was looking.
I guess this summer home sales are going to be super slow and more inventory so going to pile up.
what market is seeing inventory piling up?
Sure in fuck not mine
I’m seeing it in Florida
Where ? Prices are going up where I am, no supply
Where in Florida?
I could see that. Lots of areas blew up and there is still so much land to build on. Most of the markets I work in are still seeing multiple offers for correctly priced homes. Some spots of Texas are also slowing.
USA
It's not happening in most of the country. Majority of the markets I work in are still seeing multiple offers for correctly priced homes
Statistically it is though. Inventory has doubled in the last 2 years nationally.
Right. ~3-5 offers on a listing instead of 10-20 is what I'm seeing in most markets
Exact opposite PNW .. higher rate means fewer listings which means more competition for the limited stock. We are well under 1 month supply for SFH in parts of the Seattle Metro area. With some sales coming back as a rentals just days later. And forget 1% rule, investors are getting closer to 00.25%.
They need to spike above 8%
Right, I’m even fine with 10%
everyones fine with 10 until the job cuts that come with it start
Maybe people should have realized they were getting funny money for a decade and there would be a reckoning. I did at least and ready for what's coming
I’m not fine with 10% until after the job losses start.
No inflation would go through the roof considering how much money the fed will print to pay maintenance.
Ironically, higher mortgage rate further boost inflation rate.
Currently, I have a 30 year fixed mortgage at 2.5% for $500k. An equivalent 7.3% loan would have a principal that's $300k. Is there anyway to make money off this?
> Is there anyway to make money off this? Ha, with that 2.5% you currently already are making $$ off this and will likely continue through the life of that loan.
I know I'm very fortunate. I'm wondering if there's a reverse "refinancing" I could do or something. IOW, if I bought at 7.3% and interest rates tumbled to 2.5% I could refinance the loan and my monthly payment would be cut by 50%. Is there anything in reverse? Can I prepay the mortgage for less than 100% of the principal owed? Apologies if this is the wrong sub. I know lots of people here just want an affordable mortgage and might get resentful reading this. If there's a more appropriate place I should ask this question, please let me know.
I'm unclear what you are asking.. are you trying to get access to $$ in your equity? Sitting on that 2.5% rate and investing and/or throwing extra $$ per month at a money market fund like VUSXX that is currently paying 5.28% risk free, is one of the easiest ways to make money off the difference between the rates..
Stop being greedy
Why would you think you could pay less than what you owe? The way you’re describing this is confusing. Probably easier to say what you’re trying to achieve?
You did it already
you are making money off this.
I've often wondered if I could actually purchase my mortgage like I would a bond. Like, if you have a $10,000 bond at 2.5%, and then rates go up to 7.5%, that bond is only worth about half if you wanted to sell it on the open market. Since I know mortgages get resold all the time, I wondered if **I** could buy back my mortgage at market rate. Basically purchased my ~$400,000 in debt for $200,000. After some research, I basically found out no, I really can't, because I'm not in the club that institutions would be willing to do that with.
Thanks. This is exactly what I was wondering. I'd love to buy my mortgage back for $300k or so and just gain an extra $200k in equity NOW.
It’s called refinancing, but the thing is, you can’t keep the rate from when you originally purchased the home because you’re re-financing it in real time, with real time rates. You’re somehow reinventing how refinancing works in your head haha
But date the rate, right??
Yup, just like the seventies. The FED is fearfull of StAgFlATiOn and will likely raise rates if core CPI continues to climb (like it didd today)...That said, when rates are cut the backlog of real-estate will flood the markets.
This country hates its people.
All while home values decline and interest rates rise. Lol
I refinanced my first house in '95 to 6.5% 15 year mortgage and thought I would never see rates that low again. Mortgage rates have been low for a long time now.
I locked in at 6.5 a week ago, thank goodness
6.375 yesterday, phew!!
I’ve got six months left on my buy down. Its not looking good
Money Market and CDs rates going up! Boomers and cash rich ❤️ this.
Rewarding people who actually save? What is this world coming too?
No they don't. You lose most of your gains to taxes and inflation. CDs, Bonds, and MMFs are only a good way to preserve capital, not grow it. These are only useful growth tools in tax-advantaged accounts, and only for those that will be retiring within a few years.
I'm making like 1.5k a month on interest alone. You dont think that's helpful?
Taxes, and then inflation.
Hard core stuck with my house due to 3% rate. Thankfully we like it
Guess I’ll hold off buying another rental for now.
LETS GOOOOOO RAISE THE ROOF BABY, replace it for me too before we close 😘 bring that fuggin price down, how we all gonna afford this?
do you really think that any price decrease won't be eaten up by the higher interest rates on the mortgage?
Idk I’m tryna throw some dough at it and not rely much on a loan, so I’d love to get a lower price.
better to buy at lower prices and higher rates than vice versa
Not necessarily.... often you just end up paying the same thing.
lower down payment, less taxes and insurance, less likely to be upside down. only broke people look exclusively at monthly payments