Okay, so rates went up sooner than we all thought and certainly much faster. We all should know that rates will always rise faster than they will fall and this time is no different. We can all look at the technical side of things and follow all the charts, but for our clients and our referral partners, we need to get the information out quickly and clearly as to what it all means and what we should be doing. Don’t get me wrong, I appreciate all of you who want to show charts of rates and graphs with ceilings and floors of resistance. However, the important thing to do is to share information that people can use and relate too. Let’s be honest, if I told the average customer or referral partner that the next floor of support was going to be at “X” and that after that the next floor of support is at “Y”; most people would roll their eyes and want to know what it all means to them. So study the charts, but it’s time to “Have the Talk” about what it really means and sooner is better than later!
What we need to share is useful information to help people make choices. We aren’t going to cause a panic if we just “Have the Talk”. What do we talk about? The answer is, what does it all mean when rates go up? First thing we need to do is make everyone aware of rising rates. The actions steps are:
1) Share the information with your referral partners.
2) Share the information with your clients.
3) Call all of your current pre-approvals and recalculate the numbers.
What information do we share? Here are a couple of charts that might help.
Monthly P&I on a $250,000 – 30 year fixed rate loan (What it costs per month)
The recent rise in rates from about 3.5% to about 4% means a difference of $70 a month in payment. But what if your borrower no longer qualifies at a higher payment? What if the maximum P&I for your client was $1,125 per month? Here is what $1.125 per month gets you on a 30 year fixed rate loan.
$1,125 a month @ 3.5% = $250,556
3.75% = $242,980
4% = $235,849
4.25% = $228,658
4.5% = $221,893
So a client that qualified for a $250,556 loan when rates were at 3.5% now only can qualify for a $235,849 loan when rates are at 4%.
Realtors® must look at every pre-approval and certify that the information is now accurate and current. We don’t need “practice” putting deals together, we need to put real deals together that will close. Be of help to your Realtor® referral partners and offer to review each client and prepare for them an updated –pre-approval. Remember, just last week rates moved a long way. Almost $15,000 in purchasing power has been lost to higher rates given our scenario.
Accountants, financial planners, your database of people who were “waiting on the bottom” all need to know the “bottom” has come and GONE!
Most importantly you must reach out to your current pre-approvals and share with them the story. They won’t be happy but rates are not within your control, but solutions are. Maybe the 30 year fixed won’t work, but maybe a 5/1 or 7/1 ARM will get the job done? Maybe in lieu of a larger down payment, using points to buy the rate down could be an option? There are many possible solutions; you just need to be engaged!
DO NOT HIDE! You don’t control the market! Bad news is like a dead fish, it does not get better with age! Rates are still GREAT! They may not be as low as they once were, but a 4% interest rate on a 30 year loan is still a great deal!